Morgan Stanley Said to Consider Merger as Wachovia Calls Mack
Bloomberg
By Christine Harper and Jonathan Keehner
September 17, 2008

Sept. 17 (Bloomberg) -- 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 percent this week, people familiar with the matter said.

John Mack, Morgan Stanley's chief executive officer, received a call from Wachovia today indicating interest, said one of the people, who declined to comment because the talks aren't public and may end without an agreement. Such a deal is only one of several options being considered and the New York- based firm is also seeking ways to limit short sales of its stock, said the person.

``The smartest people at this firm are focused on solutions,'' said Mark Lake, a spokesman at Morgan Stanley. Wachovia spokeswoman Christy Phillips-Brown said it was the bank's policy not to comment on ``market rumors or merger speculation.'' The New York Times reported earlier today that Wachovia contacted Mack.

Morgan Stanley and Goldman, the biggest U.S. securities firms, tumbled the most in at least a decade 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.

``They're fish in the barrel, the short sellers have them targeted,'' said William Smith, whose firm Smith Asset Management Inc. in New York manages $80 million, including Goldman stock. ``Morgan Stanley's probably going to wind up doing a deal, it's really a matter of survival.''

Morgan Stanley dropped $6.95, or 24 percent, to $21.75 in composite trading on the New York Stock Exchange, after sinking as low as $16.08. Goldman slumped $18.51, or 14 percent, to $114.50, a three-year low and the biggest one-day drop in its nine years as a public company.

Wachovia, based in Charlotte, North Carolina, has a market value of $19.7 billion, 18 percent less than Morgan Stanley's $24.1 billion.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.
Last Updated: September 17, 2008 18:00 EDT

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