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Morgan Stanley (NYSE: MS) posted a 3% earnings decline Tuesday to $1.43 billion, according to Bloomberg News. This relatively fantastic announcement came a day early thanks to rumors that drove down the stock 23% this week. Today, Reuters reports that Morgan Stanley is considering seeking out a merger partner. Why? Given a choice between the fate of bankrupt Lehman Brothers Holdings Inc. (NYSE: LEH) and Merrill Lynch & Co., Inc. (NYSE: MER), which got a $29 a share offer, $12 above its-then $17 a share price, it's a no brainer which outcome would be better for shareholders.
Who would want Morgan Stanley? Well, Bank of America (NYSE: BAC) has many competitors who might well welcome the chance to even the stakes that it raised when it bought Merrill. No doubt there are some at JPMorgan Chase (NYSE: JPM) who would welcome the chance to rejoin with its former investment banking arm that was forced to become independent in 1935 after the Glass Steagall act separated investment from commercial banking. If JPMorgan offered a 10% premium to yesterday's closing price, Morgan Stanley could be bought for $35 billion -- roughly 25% of JPMorgan's current market capitalization. A big bite after Bear Stearns, but possibly digestible.
I think it's becoming fairly clear that the separation of investment and commercial banking was a wise move in the wake of the Great Depression. And with the daily collapse of major financial institutions, it is clear that there was great wisdom in the decision to separate them. So the possibility of using the current market collapse to reunite all these commercial and investment banks does not bode well for the future. Unfortunately, it appears that our government is now in a situation where it must choose daily between two options: terrible and catastrophic.
And it seems to be choosing terrible every time.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
9-17-2008 @ 11:19AM
Emil J Kovach Jr said...
Henry Ford Once Said:
"Those Who Do Not Remember The Past, Are Doomed To Repeat It."
Our Fore Fathers Insisted On Seperation Of Power, In Government.
We Needed Seperation, Of Power In The Financial Market, and Got It--In The 1930's
If Some One would Have been Doing A GOOD JOB, Of Checking Figures, On These "Broker Generated Mortgages"
We Would not Have This House Of Cards--Now.
EMIL J KOVACH JR
I thought The Sarbaines/Oxlet--Rules
Required CEOs To Be Responsible, For Their Figures--Someone--Mis Stated Something--Here
9-17-2008 @ 11:27AM
william lindblad said...
Emil: Go ask Barney Franks, House finance committee, they were in charge of being our watchdogs.
Peter, would you have them choose the latter?
I may be a long term pessimist, but I don't have any interest in economic collapse. I hope they can at least mitigate this mess.
Who is next? Try UBS - good candidate also. If Wells is not hiding a lot of bad paper, I have been fooled. Wait until all the Asian banks have to report. Korea is already feeling the impact.
This is one hell of a big mess.
9-17-2008 @ 12:09PM
Dr`Tony said...
the events of late parrelel teh evnts of the 1929-1930's depression with much better nets avaiolable but neverthe less teh excesses of 2001 -2005 are being called into play ..its often ssaid teh time going up you will need atleast half teh time getting back doen if we were up form 01-06 5 years and we have 2.5 years to go down then2010 next year we shoudl se a turnaround unless this gets deeper! but thats a theoretical formula
9-18-2008 @ 9:39AM
Bob Skakandy said...
I suggest that the Federal Reserve consider offering refinancing of all existing residential mortgages in the US, similar to mortgage modification. No qualifying, no new title work, etc. All existing mortgages would then be paid off and the present "meltdown" would no longer exist. Mortgage payments on these new mortgages could be back-ended or drastically reduced for a 24 month period.
No one would be worse off. The investment community would have funds as they would not be holding the existing packaged mortgages. The insurance industry would be off the hook. There would be great benefits to this plan. With reduced mortgage payments, citizens would most likely spend some of their new found money, thereby stimulating the economy, as was proposed by the Economic Stimulus tax rebates. In two years, the economy should improve and housing sales should stabilize.
In regards to the statements in the article above, monopoly is a good thing for the namesakes of the recipients of the original Antitrust Legislations. Bravo-- they have taken it all back!
“Individualism has gone, never to return": They are winning.