Morgan Stanley May Be Next to Merge

The investment bank is reportedly considering a deal with Wachovia or an investment from China, and CEO John Mack (above) also made contact with Citi's Vikram Pandit.
Author:
Publish date:

Updated from 12:27 p.m. EDT

Morgan Stanley

(MS) - Get Report

is reportedly considering a merger with

Wachovia

(WB) - Get Report

or another bank, a tie-up that, if it occurred, would be the latest chapter in what is already one of the most transformational weeks ever on Wall Street.

The New York Times

reported on the possible Morgan and Wachovia pact after the close of trading Wednesday, citing people who had knowledge of the talks.

Later, the paper reported, again citing people familiar with the matter, that Morgan CEO John Mack told

Citigroup

(C) - Get Report

chief Vikram Pandit that Morgan needed a merger partner. However, the report said, Pandit wasn't interested, and subsequently doubts began to emerge about the statements.

Citigroup on Thursday morning denied the

Times'

account of the conversation. "The comments attributed to Mr. Mack in today's

New York Times

regarding Citigroup were never stated by Mr. Mack to Mr. Pandit," Citi said in a statement. Earlier in his career, Pandit spent more than two decades at Morgan.

The paper itself later said because the sources for the comment didn't directly hear the conversation, they couldn't confirm Mack's remarks.

Cramer: When Will This Market Crack?

var config = new Array(); config<BRACKET>"videoId"</BRACKET> = 1790967178; config<BRACKET>"playerTag"</BRACKET> = "TSCM Embedded Video Player"; config<BRACKET>"autoStart"</BRACKET> = false; config<BRACKET>"preloadBackColor"</BRACKET> = "#FFFFFF"; config<BRACKET>"useOverlayMenu"</BRACKET> = "false"; config<BRACKET>"width"</BRACKET> = 265; config<BRACKET>"height"</BRACKET> = 255; config<BRACKET>"playerId"</BRACKET> = 1243645856; createExperience(config, 8);

Meanwhile,

CNBC

said Morgan's talks with Wachovia are indeed taking place and moving toward an advanced stage. At the same time, Morgan is continuing to seek capital from the Chinese government, possibly by selling part of the company to a Chinese bank, the report said.

The network also indicated that Mack has lobbied top officials from the

Federal Reserve

and the Treasury Department for their approval for a China deal. China's sovereign wealth fund,

China Investment Corporation

, owns 9.9% of Morgan, and

Bloomberg

said the fund might try to lift its stake to 49%.

Even so, Morgan is said to be leaning toward working out an arrangement with Wachovia, according to

CNBC

.

According to the

Times

report Wednesday, Mack got a call from Wachovia executives asking about merger possibilities. Morgan Stanley and Wachovia representatives, reached after the initial report, had no comment.

Shares of Morgan, which sank to a 52-week low in regular trading during the last session, were recently down 21.3% to $17.11.

Already this week,

Lehman Brothers

(LEH)

has filed for bankruptcy,

Merrill Lynch

(MER)

has agreed to be acquired by

Bank of America

(BAC) - Get Report

and

AIG

(AIG) - Get Report

reached an arrangement for a Fed-led bailout.

With the Chapter 11 of

Lehman Brothers

and the takeover of

Merrill

, that left

Goldman Sachs

(GS) - Get Report

and Morgan Stanley as the lone big U.S. investment banks. However, should Morgan join forces with Wachovia or another firm, Goldman will be the last of the large independent domestic investment banks.

On Tuesday, after both reported their quarterly results,

Morgan and Goldman

executives said they didn't need or plan to look for merger partners right now.

Meanwhile,

Washington Mutual

(WM) - Get Report

is reportedly on the auction block. A separate

Times

report said the lender has hired Goldman to find bidders, which could include

Wells Fargo

(WFC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

and

HSBC

(HBC)

.

This article was written by a staff member of TheStreet.com.