Morgan Stanley has also approached Chinese sovereign wealth fund China Investment Corp. about boosting its stake following a $5 billion investment late last year. |
NEW YORK -- Morgan Stanley topped the list of major financial companies scrambling to find a buyer as its shares tumbled another 21 percent, while central banks rushed in $180 billion in extra liquidity to calm panicked stock and money markets.
Morgan Stanley was in deal talks with U.S. regional banking powerhouse Wachovia Corp , and negotiations advanced to a more formal stage, a source familiar with Morgan's plan said Thursday.
The No. 2 U.S. investment bank, whose shares are down about 58 percent this month, has also approached Chinese sovereign wealth fund China Investment Corp about boosting its stake, the source said, following a $5 billion investment late last year.
HSBC Holdings Plc was named by CNBC as another potential bidder for Morgan Stanley, but a person familiar with the matter said the bank "is not interested."
Morgan Stanley and larger rival Goldman Sachs Group Inc , the largest surviving independent Wall Street investment bank, are facing concern that the credit crunch could constrict the short-term funding on which they've traditionally relied. The deposit base of a commercial bank could be a more stable alternative, analysts say.
Morgan Stanley stock was off $4.55 to $17.21, while Goldman dropped 12 percent to $101.16, on growing concerns about the viability of the investment bank business model. Also, the cost of insuring Morgan Stanley debt against default rose.
BENEFIT DOUBTFUL
"While Morgan Stanley's issue in the markets is concern over its short-term funding, the merger would not create new deposits; the majority of the combined company would still require market-based funding," said Merrill Lynch analyst Edward Najarian in a research note.
"Thus, it is difficult for us to perceive a strategic benefit for Morgan Stanley, which would be merging with the weakest of the five major U.S. banks, and the bank with the most credit risk relative to its tangible capital," he added.
Wachovia shares rose 11 percent, while the Dow Jones industrial average was up 12 points, easing after a big bounce. Following its near-collapse and bailout, insurance giant American International Group Inc has been replaced in the index by Kraft Foods Inc.
British bank Lloyds TSB Group Plc took advantage of the market turmoil to achieve a long-held ambition by scooping up the country's biggest mortgage lender, HBOS Plc , in a $22 billion all-share deal.
HBOS shares, which had slumped due to fears about its funding, soared 40 percent, and the British government promised to rewrite competition laws to let the deal go through.
As Morgan Stanley cast around for a lifeline, the Government of Singapore Investment Corp (GIC) said it would consider all possibilities, including taking a stake if approached. Morgan Stanley declined to comment.
With the financial landscape undergoing its most dramatic transformation since the Great Depression, top U.S. savings bank Washington Mutual Inc was also tipped for takeover.
NERVES CALMED
After Asian stocks dropped overnight, the Federal Reserve announced coordinated moves with five of the world's major central banks to inject up to $180 billion in liquidity into global money markets, which gave some reassurance to panicked investors, and slashed overnight money rates to 2 percent from 8.5 percent.
As an indication of the demand for liquidity, the Bank of England said it received bids of 202 billion pounds for the 66 billion pounds on offer in its weekly open market operation.
In his first remarks about the crisis since the government's $85 billion takeover of AIG earlier this week, President Bush expressed concern on Thursday about the turmoil in the financial markets, and said his administration was prepared to take further measures to strengthen and stabilize them.
"The American people are concerned about the situation in our financial markets and our economy, and I share their concerns," he told reporters in a two-minute statement outside the Oval Office.
The MSCI index of Asia stocks excluding Japan, which had been down almost 5 percent, was down just 1.6 percent after the central banks' move, while Tokyo shares ended 2.22 percent lower. Hong Kong's Hang Seng index closed flat, having earlier fallen more than 7 percent.
The DJ Stoxx banking index ended down 0.13 percent after being up 1.6 percent on the leap in HBOS stock and strong gains for Swiss banks UBS AG and Credit Suisse AG and for Royal Bank of Scotland Group PLC and Barclays Plc in London.
RUSSIAN MARTS SHUT AGAIN
Barclays seized the rare positive moment to announce a 750 million pound fund-raising to help with its purchase of assets from Lehman Brothers Holdings Inc which filed for bankruptcy protection on Monday.
Russian stock markets remained closed for a second day, with the Kremlin pledging $20 billion in support when they reopen on Friday.
"After the bailing out of AIG failed to reassure the market, it is difficult to imagine what could really stop the unorderly deleveraging that is going on," French investment bank Calyon said in a note Thursday.
The U.S. Fed hoped its $85 billion rescue of AIG on Tuesday might would calm markets, but financial stocks continued to fall, triggering a wave of panicked matchmaking.
Shares of Macquarie Group Ltd, Australia's biggest investment bank, skidded 23 percent to their lowest level in more than five years amid funding worries.
Industrial and Commercial Bank of China Ltd, which had been the world's most valuable bank until it was surpassed by HSBC on Wednesday, fell nearly 14 percent, though it later recovered those losses to end slightly higher.
'ANYTHING'S POSSIBLE'
Washington Mutual, beleaguered by mortgage losses, put itself up for sale, sources familiar with the situation said. Potential suitors include Citigroup Inc, JPMorgan & Co , Wells Fargo & Co and HSBC.
WaMu shares jumped 13 percent.
Last weekend, investment bank Merrill Lynch & Co Inc struck a deal to sell itself to Bank of America Corp .
U.S. authorities have spent $900 billion to prop up the financial system and housing market.
The rescue of AIG came just over a week after the government bailed out mortgage finance companies Fannie Mae and Freddie Mac, and six months after the Fed brokered the sale of failed investment bank Bear Stearns to JPMorgan Chase. | 
