Morgan Stanley in talks with Wachovia
Morgan Stanley is in preliminary merger talks with Wachovia, the troubled regional lender, and is exploring other potential deals in an effort to avoid becoming the next victim of the credit crunch.
Wachovia’s approach to Morgan Stanley came after the shares of Morgan Stanley and Goldman Sachs plunged and the cost of insuring their debt rose sharply – a sign of waning investor confidence in Wall Street’s last two large investment banks.
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Goldman has approached a number of banks including Citigroup, JPMorgan Chase and Wells Fargo but it is unclear whether rivals would bid for a company that has billions of bad assets.
The banks declined to comment, but JPMorgan is believed to be unwilling to bid for WaMu at this price, while San Francisco-based Wells generally focuses on small acquisitions. Citi is also believed to be wary of expanding its US retail operations during an economic slowdown.
The collapse of Lehman Brothers, which filed for bankruptcy protection on Monday, has shifted investor attention to Morgan Stanley and Goldman amid concerns about the viability of stand-alone investment banks .
Morgan Stanley declined to comment, but people familiar with the situation said it had received a phone call from Charlotte-based Wachovia on Wednesday and its executives were considering the approach. They added that they were exploring other options including deals with other banks.
John Mack, Morgan Stanley’s chief executive, was said to be livid at the plunge in the share price. He contacted Hank Paulson, Teasury secretary, and Christopher Cox, Securities and Exchange Commission chairman, accusing short sellers of targeting Morgan Stanley and urging them to take action.
The SEC on Wednesday night said it would subpoena hedge fund managers who had traded in 19 financial institutions and require managers with holdings of $100m or more in certain securities to report their short positions every day.
In a memo, Mr Mack said: “There is no rational basis for the movement in our stock or credit default spreads...We’re in the midst of a market controlled by fear and rumours and short sellers are driving out stock down.”
Morgan Stanley shares fell 24 per cent to $21.75. Goldman fell 14 per cent to $114.50
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