| Page 2 of 2 < |
Could the End Be Near for the Big Wall Street Brokerage?
TOOLBOX
   Resize
COMMENT
 Discussion Policy
 CLOSE
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Who's Blogging  |
Morgan Stanley and Goldman Sachs got support from the California State Teachers' Retirement System, which decided late Wednesday to stop lending its shares of the two companies to short sellers, who borrow stock in hopes of repaying it after the price has dropped.
Chris Ailman, chief investment officer of the giant pension fund, which is known as CalSTRS, wants other state pension funds to follow suit.
"It won't end the short selling but will make it tougher," he said.
But Morgan Stanley may have more than short sellers to worry about. The 73-year-old firm, which on Tuesday posted better-than-expected results for the third quarter, still has out-of-favor assets on its books, including mortgage securities and leveraged loans.
"I think there probably are people making a lot of money watching the stock drop, but there also has to be some reason why people don't take the other position" and buy it on its way down, said Thomas Cooley, dean of New York University's Stern School of Business. "There's just sufficient uncertainty. We don't know what's in their portfolios."
Investment and commercial banks already have taken billions of dollars of write-downs on assets that turned toxic in the subprime mortgage meltdown. But investors remain concerned about whether the firms are accurately pricing the assets and how quickly they will be able to get them off their books.
Those concerns, unfounded or not, led to Monday's Chapter 11 filing by Lehman Brothers and have put pressure on Morgan Stanley and Goldman Sachs to consider merging with a retail bank, as Merrill Lynch on Monday announced it would.
Goldman Sachs and Morgan Stanley officials boasted this week about the strong credit ratings they carry. "Yet, the tectonic shifts in risk and return could even force the better firms to link up with a depository bank," David Hendler, a financial industry analyst at the independent research firm CreditSights, wrote in a note to clients.
Some analysts suggested this week that the firms merge with retail banks so they would have access to a stable base of deposits. Although bank deposits could not be tapped to fund most of the investment-banking activities at Morgan Stanley and Goldman Sachs, they could give investors -- and the credit-rating agencies that often set the tone for the firms' relationships with lenders and trading counterparties -- peace of mind just by sitting on the balance sheet.
