"There's no reason a Goldman Sachs or a Morgan Stanley should be forced to sell themselves in a shotgun wedding if they've got economic models that work, and they do." - David Katz, Matrix Asset Advisors
The 4% rise in shares of Morgan Stanley at Thursday's market close will come as small consolation to the shareholders who have so far lost close to 60% of their money in the blue-blooded investment bank this year. But for all the talk of a potential buy-out, the investment arm of the House of Morgan may just remain independent. And despite speculation to the contrary, a buy-out by a purely commercial bank such as Wachovia is more unlikely than it appears.
Partly this is thanks to federal policymakers, who are waking up to the fact that much of Morgan Stanley's -- and by extension the market's -- woes are due to short speculators rather than any sort of genuine liquidation. That's a situation which stands in stark contrast to around this time last year, when funds were unloading shares in order to repay subprime-spurred losses on defaults of mortgage-back securities.
But it's also that the math doesn't add up. Morgan Stanley's valuation, at around $25 billion, is less than the value of the total assets the bank manages. That's much more of an investment banking style trade than it is one a commercial bank understands, or pursues. In other words, if anyone snaps up Morgan Stanley, it's much more likely to be Citigroup than Wachovia.
Stephen Grocer at the Wall Street Journal adds:
That aside, Salmon has reservations about the deal, among them whether Wachovia is big enough to save Morgan Stanley.
Indeed, what may keep Morgan Stanley from being swallowed up at all is the bidding likely to ensue for the firm, which in turn, would result in a temporary run on its stock. Already this morning there was speculation than China investment Corporation, a $200 billion acquisition giant which owns a 9% stake in the bank, may snap up a larger slice.
It's worth remembering too that Morgan Stanley -- like its nemesis Goldman Sachs -- has not been without its share of problems in the past. The difference between Morgan Stanley and Goldman Sachs however (which investors are ignoring right now) is that Morgan Stanley has weathered it's woes as a public company before, whereas the latter has not.
Whatever the outcome, it's certainly worth buying into any dips in Morgan Stanley over the next couple days, because the chase to acquire it will be much more aggressive than for smaller siblings Lehman Brothers and Merrill Lynch. And if Morgan Stanley manages to remain independent, it's a long-term win-win for everyone.
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