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Morgan Stanley considers merger with Wachovia

Posted by Yogesh on Thursday, 18 September, 2008

NEW YORK: Morgan Stanley and Wachovia Corp were the subject of a report in the New York Times .

Morgan Stanley is considering a merger with Wachovia, according to people briefed on the discussions.

Morgan Stanley CEO John Mack received phone call on Wednesday from Wachovia expressing interest.

Other banks have also expressed interest in Morgan Stanley. Wachovia talks are preliminary, no deal may emerge.

Morgan Stanley shares sank 42 per cent, below the depths reached during the 1998 Asia debt crisis and the collapse of Long-Term Capital Management a decade ago. Goldman stock dropped as much as 26 per cent to a three-year low. This year, Goldman shares have tumbled 53 percent, while Morgan’s are down by two-thirds.

“It’s very clear to me — we’re in the midst of a market controlled by fear and rumours, and short sellers are driving our stock down,” Morgan Stanley Chief Executive John Mack told employees in a memo obtained by Reuters .

“There is no rational basis for the movements in our stock or credit default spreads.”

More ominously, investors bid up the price of protecting against a default by the banks, indicating concern that Wall Street’s biggest companies are at risk and may seek some measure of safety by merging with a commercial bank.

Morgan Stanley bonds also fell, with some issues trading at distressed levels. Its 6 per cent notes due in 2015 traded at 61 cents on the dollar, down from 94 cents a week ago, and yield 12.25 percentage points over Treasuries.

“The credit crunch and credit contraction is intensifying,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. “The action in Morgan Stanley in light of what were better-than-expected numbers last night is disconcerting.”

On Tuesday evening, Morgan Stanley rushed to release quarterly results, a day ahead of schedule, after investors sent its shares reeling 11 percent and increased debt-default insurance costs.

Morgan out-earned larger Goldman, which posted a 70 per cent decline in profit but exceeded expectations. Source The Times of India

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