Paulson: Wachovia meet Morgan Stanley. Morgan Stanley meet Wachovia.
Wachovia has a deposit base and Morgan Stanley is being besieged by short sellers.
I’m sure you’ll both get along just fine.
Well that could’ve happened. Wachovia and Morgan Stanley are officially in talks, according to CNBC. What’s the rationale for the new development?
Well, Wachovia, as a commercial bank, has weathered the financial crisis relatively well, giving it the third-biggest deposit base in the US. That, in theory would help strengthen Morgan Stanley, whose shares have fallen about 42 per cent so far this week as investors worry about the bank’s ability to fund its trading and lending units. However, as Felix Salmon notes:
Yes, Wachovia has a deposit base, but that’s a bit like your would-be spouse having a pulse: a necessary precondition, but hardly reason to get married. If these two do end up in a shotgun wedding, I predict divorce within a couple of years. On the other hand, when the alternative is summary execution at the hands of a brutal market, it’s amazing how attractive that altar in Charlotte can become.
To this we would add a more insidious theory from TraderMark at Fund my Mutual Fund:
Will [a merger] stop the shorts? Won’t they just buy up the debt protection of Wachovia and say “now you are taking on your own risk plus Morgan Stanley’s?” and cause more panic? I don’t know. I mean if you can incite panic in each individually - why not together? Then S&P can downgrade on the “signals the credit swaps are sending us” and they can go to $0 together in 1? Or is this just making it easier for the government to bail them out - instead of 2 Sundays they can do them together in 1 Sunday? And instead of 2 bailouts to send to Congress, it is only 1? Genius.
Hmmmm. Is this the future? Keep consolidating banks until you’ve got just a few ’superbanks’? Then all the FED has to do, is wait for those sinful short-sellers to strike again, and suddenly, like AIG, they’re all “too big to fail.” Boom (or bust): bail-out consolidation will have arrived.
