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Morgan Stanley holds talks with Wachovia and CIC

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by Kay Mitchell

According to Reuters, US investment bank Morgan Stanley is in talks with Wachovia and China Investment Corp (CIC) about a possible takeover or an investment opportunity.

Last week, shares in Morgan Stanley plummeted after the collapse of Wall Street giant, Lehman Brothers, the rescue of US insurance giant AIG and Bank of America’s takeover of Merrill Lynch. Investors panicked fearing that other financial institutions would suffer the same fate as Lehman.

Meanwhile in the UK, Lloyds TSB is to takeover HBOS in a deal worth £12.2 billion, however, the agreement could result in thousands of job losses.

Traders are concerned about the future of Morgan Stanley, however shares in the investment bank recovered 26% after news of a proposal by the US Government to deal with the financial crisis.

However, shares remain 32% lower than their price a fortnight ago.

Henry Paulson, US Treasury Secretary, and Ben Bernanke, chairman of the Federal Reserve, are investigating the possibility of setting up a repository for bad bank, according to a report by CNBC.

According to sources, a deal between Wachovia and Morgan Stanley is likely involve a stock purchase while CIC would include a cash infusion by CIC.

However, the announcement of the US Government’s rescue package has given the bank breathing space to consider its options.

According to a report in the Wall Street Journal, CIC’s interest may be dependent on Wachovia being able to sell off some of its mortgage assets.

Meanwhile, sources close to the bank said CIC is in discussions to increase its stake in Morgan Stanley to 49%. Last December, CIC bought a 9.9% stake.

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News posted: September 21, 2008

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