EVEN Morgan Stanley and Goldman Sachs, the two last giants left standing on Wall Street, are no longer immune.
To the surprise of the firms' executives, and their rivals, the shares of these powerful companies were drawn into the crisis of investor confidence in Wednesday's trading in New York.
Morgan Stanley, whose shares fell almost 25 per cent, was considering a merger with Wachovia or another bank to help shore up its finances. Goldman Sachs's shares fell almost 14 per cent, and it had to rebuff rumours that it was seeking a capital infusion.
The assault on these two companies underscored how quickly a sense of fear is spreading through Wall Street. Both firms had just reported respectable profits on Tuesday, and were considered in a separate class from weaker banks like Bear Stearns and Lehman Brothers that saw the value of their businesses evaporate.
"Stop the insanity," wrote Glenn Schorr, a brokerage analyst at UBS, in an email message to clients on Wednesday.
A tie-up with a bank would restore Morgan Stanley to its structure during the Depression, when the firm split from the Morgan banking empire.
It would also leave Goldman Sachs as the last major American investment bank after a global financial crisis that has gripped markets for more than a year snowballed last week, forcing the most risk-taking industry in the world to get back to basics.
Only a day earlier, Morgan Stanley defended itself from growing doubts about its future, issuing a fairly positive earnings report to ward off concerns about its health.
But the fear that gripped markets after Lehman Brothers failed also enveloped the firm. Seeking to avoid the kind of fate that led Lehman and Bear Stearns to collapse, John Mack, Morgan Stanley's chief executive, made an unsuccessful effort on Tuesday to persuade Citigroup's chief executive, Vikram Pandit, to enter into a combination, according to people briefed on the talks.
"We need a merger partner or we're not going to make it," Mr Mack told Mr Pandit. Mr Pandit, a former senior investment banker at Morgan Stanley, said Citigroup was not interested.
Having failed at that Mr Mack entered into discussions on Wednesday with Wachovia and several other banks. The talks with Wachovia are preliminary and a deal may not emerge.
Goldman Sachs may be under less pressure given its recent history of outperforming its peers. The bank made $US11.6 billion ($14.5 billion) last year and has not posted a loss during the credit crisis. Morgan Stanley has also performed well, but has suffered more write-downs and had a loss of $US3.6 billion in the fourth quarter of last year.
Still, many specialists say they believe that the monumental events of the past four days herald a period of painful change for the American financial industry - one that speculators are rushing to pounce on.
The New York Times
