Insiders at Morgan Stanley (MS) believe that CEO John Mack may try to avoid the catastrophic dithering that led to the wipeout at Lehman Brothers by doing a deal now, before real pressure begins to build on the stock.
MS has a considerably stronger balance sheet than Lehman did, and MS actually managed to make money in Q3. But this hasn’t stopped the sharks from circling. The cost of credit default swaps on MS bonds spiked on Tuesday, indicating a poisonous sentiment surrounding the firm. The strong Q3 earnings released after the bell should help, but the questions aren’t going to end there.
As of late yesterday (Tuesday) Morgan officials were not in merger discussions, according to people close to the matter. But senior people at Morgan concede that further zig-zags in the company’s stock price could and possibly will force the company to change course and seek a merger partner, probably a well capitalised bank.
Morgan Stanley CEO John Mack wants to avoid the mistake made by Lehman Brothers CEO Richard Fuld, who brushed aside buyout offers until the market crushed shares of the firm and force it into bankruptcy.
Mack is carefully monitoring the market reaction and may indeed decide to do a deal if it looks like the firm could face a liquidity crisis as traders begin to pull funding from the firm.
“Mack isn’t going to wait,” said one person familiar with his thinking. “If he sees the writing on the wall, he’s going to do something”.
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