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Goldman and Morgan Stanley on the ropes
Robert Mendick, Chief Reporter18.09.08
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The last two independent investment banks on Wall Street were today engulfed by the banking crisis.
Morgan Stanley is being forced into a desperate merger to stay afloat. Goldman Sachs is also on the rack, having seen 14 per cent wiped off its share price last night.
At one stage, Goldman's share price had dropped more than a fifth. Analysts said it may also have to consider a merger and will anxiously be watching the markets over the next 48 hours.
The Wall Street Journal today said that confidence in the two banks - which have European headquarters in London and between them employ 10,000 high-paid workers here - had "withered" in just 24 hours.
Morgan Stanley, whose shares plunged 24 per cent last night and were at one stage down as much as 44 per cent yesterday, has held preliminary merger talks with Wachovia, a troubled US regional bank.
Other banks are also thought to have been approached as Morgan Stanley's shares finished trading yesterday at $21.75, down $6.95.
The New York Times said that John Mack, Morgan Stanley's chief executive, has entered discussions with "several other banks".
The merger talks are said to be preliminary and a deal may not emerge. Morgan Stanley's possible demise follows a $3.6 billion loss posted in the fourth quarter of last year.
If it were to merge, that would leave Goldman Sachs as the last remaining independent investment bank on Wall Street. But even Goldman is not immune from the effects of the banking crisis and was forced yesterday to rebuff rumours it was desperately seeking an investment of capital.
Earlier this week, Goldman revealed a 70 per cent drop in third quarter profits to $845 million (£465 million) - its worst fall since it went public nine years ago. Chairman Lloyd Blankfein tried to reassure investors that even in these challenging times the bank had done well.
His words of calm were not helped by one unnamed Goldman's employee telling the Wall Street Journal: "I've lost more than half my net worth in a month." Its shares fell by $18.51 to $114.50 at the end of trading yesterday.
Goldman is unusual among its peers in that staff or former staff still own the vast majority of the shares. It floated in 1999 and 48 per cent of the shares are held in its partnership pool, 22 per cent are held by employees who are not partners, and another 18 per cent by former partners. That means any merger undertaken by Goldman will have to be agreed by its staff.
The assault on Goldman and Morgan Stanley was largely unexpected. Goldman, especially, was thought to have seen the credit crunch crisis coming and has boasted about a superior performance.
Mr Mack believes his bank has become the victim of short selling. Yesterday, he sent a memo to Morgan Stanley employees which read: "What's happening out there? It's very clear to me - we're in the midst of a market controlled by fear and rumours and short-sellers are driving our stock down."
Chinese investors, unaffected by the sub-prime meltdown and awash with cash, are also said to be considering a stake in Morgan Stanley.
Reader views (12)
I agree with Jas, roll on the kingdom.
- Josh Dixon, London
I once worked for Goldman Sachs, it wasn’t a nice experience, it’s known as one of the nastiest cut throat business going… Hope the company does fall to the credit crunch! The bosses don't care for anyone but themselves and their bank balance, so why should we care about them! Companies like this don't deserve to be in business in the first place.
- Paul, London
Time to abandon the dicredited anglo liberal market economy adopted and taken to extremes in the US, and time for a new european world order and european regulation of the markets.Stability please without it no prosperity....
- Amoreno, luxembourg
The West has been uneconomic for some time. stipped of its manufacturing it has nothing left but service industries. Banking relied on the huge manufacturing base to grow so why are we surprised. I look around the streets of Britain and see virtually no cars, busses, trucks, planes trains clothing, food etc that are muanufactured in the country. We have known that this was going happen for 80 years because the scriptures have told us that this would happen to these Western Nations. For over forty years of my life I have known what was going to happen, very much the same as when leaving Waterloo I know what stations are next. I can't understand why our leaders ignore this and the answers to the problem. If you look into the book of Revelation you will see the present crisis is going to get so bad that gold will be thrown away as useless.
- Jas, Alders UK
Short sellers do actually serve a possibility. They help ensure that companies are not over-valued (and keep the price closer to the real value of the company). Some of the biggest share collapses have been worse in countries where the practice is illegal.
- Anthony, St Albans, UK
Let's just say, you could see this coming a couple of years ago. I did,and i'm a carpenter not a banker. Central Banks, both US and UK Governments were content to ride on the so called feelgood factor that was being generated by these greedy people in Wall Street and The City. Greed and debt was everywhere,just look at the obscene cost of housing for an example. Now of course everybody is wise after the horse has bolted, and who's going to pay the price, joe public, in jobs and tax. And now we have Gordon Brown riding to the rescue, declaring war on the greedy City Boys. You couldn't make this stuff up. Both he and his cohorts knew what was going on but chose to ignore it because it was making them look good. The Economic Miracle..no more Boom and Bust. These people should be jailed for what they've allowed to happen. But they won't be, they'll huff and puff and then ride off into the sunset with their fat bank accounts and pensions, leaving us to pick up the pieces.
- David, Falmouth Cornwall
Liar Loans are not only a US problem: LIAR LOANS - the cause of ALL this crisis -- were and are ALSO endemic here in the UK. Don't try and kid yourselves [like Mr Brown] that the UK sn't inthe thick of all this too....
- Eric, London
like Morgan Stanley never made any money by short-selling...
treat others like you would like to be treated yourself...
what goes around comes around...
- Not Saying, uk
The shorters are only following the market; if they believe a share price will fall they merely help it along so that it reaches its "correct" price more quickly. Blaming short sellers would be like blaming vultures for a dead body.
- Neil, london uk, Airstrip ONE .
There needs to be some serious investigations here.
I don't mind make banks making profit, but what I object to is staff (CEO, trader et al) being paid huge sums for profits that never existed. If it can be shown that a bank was insolvement whilst paying out these bonuses, they should be reclaimed. The banks are run for the shareholder (who take the risk), not the for the staff to pull a fast one.
- Mike Livingstone, Reigate
why blame the short sellers, when everyone else was making money they were making a loss, now its the other way around and everyones complaining.
everyone brought this unto themselves, where theres loss, theres gains elsewhere
- Hafizur, London, Stratford
The whole crisis was started by dodgy selling on of sub prime loans in the USA, which made some people very rich. We are now having payback. Meanwhile the vultures in the financial sector(the short sellers etc) are greedily feeding off the chaos that was once a stable banking sector in an effort to make even more money. The losers are the ordinary workers facing redundancy, and share holders. This is the shameful side of capitalism.
- Steve, Hereford
