Morgan Stanley (MS) Down Again Even As Merger Looks Possible

Shares of Morgan Stanley (NYSE: MS) are lower again today following reports the company is in advanced talks to merge with commercial bank Wachovia (NYSE: WB). Shares of Morgan Stanley have been battered for eight straight session as the fallout from the credit crisis intensifies.

Analysts have suggested a merger with a deposit bank could bolster Morgan Stanley's liquidity, but just Tuesday the company's CFO said it would remains independent. Clearly, the pressure on the stock yesterday has led management to reconsider this position.

Yesterday, shares of Morgan Stanley finished the day down 24% as investors questioned the broker-dealer business model following the collapse of Lehman Brothers. The stock was down over 40% earlier in the session yesterday before rallying back.

The credit-default swaps on Morgan Stanley have tightened today, but had risen three days in a row due to the heightened fears of failure.

Yesterday's Morgan Stanley's CEO John Mack addressed the stock's slide directly in a memo to employees. Mack called the move in the stock 'irrational', saying last night's earnings and their $179 billion in liquidity proves their strength. Mack blamed short sellers and rumor mongering for the weakness, saying, "It's very clear to me - we're in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down." Mack said he has talked with Treasury Secretary Paulson and the SEC and encouraged employees to communicate with clients about the company's strength.

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