Morgan Stanley Weighs Merger With Wachovia
Morgan Stanley is weighing a merger with Wachovia Corp. and several other banks as the securities firm seeks to regain investor confidence after its shares sank 42% this week, people familiar with the matter said.
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The Morgan Stanley sign is seen at their world headquarters December 19, 2007 at New York City.
Morgan Stanley's chief executive officer, John Mack, received a call from Wachovia yesterday indicating interest, said one person, who declined to be identified because the talks aren't public and may end without an agreement. Such a deal is one option being considered and the New York-based firm also is seeking ways to limit short sales of its stock, said the person.
"It makes more sense to try to determine your own fate than to let the market decide it," the managing director of Renaissance Financial Corp. in Leawood, Kan., who manages $1.8 billion and who used to work for Morgan Stanley, Douglas Ciocca, said. "But Wachovia still has a lot of issues and I would think that would need further examination."
Morgan Stanley and Goldman, the biggest American securities firms, tumbled the most ever after a government rescue of American International Group Inc. failed to ease the credit crisis. The cost to protect against a default by the Wall Street firms rose to a record. Wachovia, the fourth-largest U.S. bank, plunged 21% after saying it would support $494 million of Lehman Brothers Holdings Inc. credits held by its Evergreen Investments money market funds.
"The smartest people at this firm are focused on solutions," a spokesman at Morgan Stanley, Mark Lake, said. Wachovia spokeswoman Christy Phillips-Brown said it was bank policy not to comment on "market rumors or merger speculation." The New York Times reported earlier today that Wachovia contacted Mr. Mack.
Wachovia, based in Charlotte, N.C., has a market value of $19.7 billion, 18% less than Morgan Stanley's $24.1 billion.
The chief executive officer of Wachovia, Robert Steel, hired in July to replace Kennedy Thompson, is cutting $1.5 billion in expenses and reducing risk to cope with mounting losses from Wachovia's $122 billion of option adjustable-rate mortgages.
A Morgan Stanley-Wachovia tie-up "makes much more sense for Wachovia," than for Morgan Stanley, Mr. Ciocca said.
HSBC Holdings Plc, Wells Fargo & Co., and JPMorgan Chase & Co. are among the potential bidders for a Wall Street firm, according to Anton Schutz, president of Mendon Capital Advisors. Goldman and Morgan Stanley have both done deals with Chinese companies: China Investment Corp., the state-controlled investment fund, bought a stake in Morgan Stanley in December, and Goldman invested in Industrial & Commercial Bank of China Ltd. in 2006.
