Morgan Stanley, WaMu Reportedly Looking For Buyers
At the beginning of 2008, five independent investment banks were doing business on Wall Street. Two remain: Morgan Stanley and Goldman Sachs. Now the question is for how long?
With the nation’s financial crisis reaching a fever pitch and markets here and abroad reeling from losses on subprime-related write downs and the credit crunch, it’s become a survival of the fittest for Wall Street. Now, financially troubled Washington Mutual, the country’s biggest savings and loan, is said to be looking for a buyer, while Morgan Stanley, the No. 2 biggest independent securities firm in the United States, reportedly may merge with Wachovia Corporation after its shares plummeted more than 40% amid news of Lehman Brothers’ bankruptcy.
The latest upheaval in the financial world underscores the severity of the credit crisis - and investors’ fears that more is to come. In the course of a week, the nation’s oldest investment firm, 158-year-old Lehman Brothers, goes bankrupt with debts totaling $613 billion. Merrill Lynch, fearful it might suffer a similar fate, is acquired by Bank of America. The Dow Jones Industrial Average loses more 500 points, its biggest drop since the Sept. 11 terrorist attacks seven years ago. Then, the U.S. Treasury Department, which previously said it would no longer put taxpayers’ money at risk by bailing out troubled companies, announces an $85 billion rescue for American International Group (AIG).
Even more unsettling to investors is the fact that some money market funds - a $3.5 trillion sector and once considered to be safe as cash - are losing money. In a rare “break the buck” scenario, the Reserve Primary Fund revealed on Sept. 16 that it had reduced the value of customers’ shares to below $1 to 97 cents.
And now reports surface that Seattle-based Washington Mutual is aggressively looking for a deal to save itself. WaMu’s biggest shareholder, TPG Inc., announced yesterday that it is willing to accept a dilution of its stake in the bank if it is sold. Both Wells Fargo and Citigroup have been rumored to be potential buyers.
Stung by heavy losses from adjustable-rate mortgages, Washington Mutual has seen its shares fall to their lowest levels in nearly two decades this year. Earlier in the month, Kerry Killinger, the bank’s CEO, was fired and replaced by Alan Fishman. Making matters even worse, the bank was cited by the Office of Thrift Supervision (OTS) for poor risk management practices.
Meanwhile, Morgan Stanley is dealing with problems of its own. Its shares dropped more than 40% on Sept. 18, amid concerns that it was the next investment bank to close up shop. CNBC first reported that the firm was considering a merger with Wachovia, the fourth-largest bank in the United States, on Wednesday night.
Stay tuned. The events of Wall Street are changing by the hour.
Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.
