Morgan Stanley Still In Heavy Game Of Footsie With Wachovia, China

Even though it is no longer an investment bank, and it has access to a decent line of credit from the government, Morgan Stanley continues to flirt with potential suitors according to the Wall Street Journal. Be warned though, the story excerpted below was out before the news broke that investment banks are dead.

WSJ: Morgan Stanley was deep in discussions on Sunday about merging with regional banking giant Wachovia Corp., a deal that would put another nail in the coffin of independent investment banks.

Although the pressure on Morgan Stanley to find a merger partner eased with the $700 billion rescue put forth by the federal government, it didn’t ease much, according to people familiar with the matter. Morgan Stanley is also discussing selling a substantial stake in the potential merged company to China Investment Corp., an arm of the Chinese government.

In a slightly ironic twist, given the news from tonight, the article goes on to question the wisdom of an investment bank joining a commercial bank.

Still, plain-vanilla banking isn’t a cure-all for what ails Wall Street. Commercial banks also run securities units that are highly leveraged and that have little to do with bank deposits. Also, the track record of so-called financial supermarkets such as Citigroup is so-so.

“It’s not obvious that there’s a clear economic benefit” to investment banks merging with commercial banks, says Campbell Harvey, a finance professor at Duke University.

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