Morgan Stanley Board Meets to Weigh Options

PHILADELPHIA (Reuters) – Morgan Stanley’s (MS.N) board was scheduled to meet on Saturday to weigh strategic options for the investment bank, including a possible takeover by Wachovia Corp or selling a bigger stake to China Investment Corp, sources familiar with the situation said on Saturday.

No deal was seen as imminent and no formal offers were on the table from Wachovia (WB.N) or sovereign wealth fund China Investment Corp (CIC), sources said.

Morgan Stanley and Wachovia declined to comment and CIC could not be immediately reached.

Morgan Stanley feels less pressure to do a deal with Wachovia, or any other potential partner, in the wake of the U.S. government’s massive rescue plan, the sources said.

The U.S. government said on Friday said it is preparing to take on hundreds of billions of dollars in bad mortgage debt from the banks’ balance sheets, after curbing short selling and guaranteeing mutual funds in an effort to stabilize financial markets.

Any deal between would likely involve a stock purchase of Morgan Stanley by Wachovia, but Morgan Stanley’s first preference is to remain independent, the sources said.

Although no deal is seen as imminent, all options are being weighed by the board this weekend, including a cash infusion by CIC, sources said. Still, Morgan Stanley is considering whether it needs to do a deal at all, sources said.

In the past week, Morgan Stanley’s stock plunged and its debt insurance prices surged amid fear that even large broker-dealers could not weather the current crisis.

A series of moves by the U.S. government to limit short sales and to sop up toxic bank assets sparked a rally in financial shares on Friday.

Morgan Stanley has seen its market capitalization plunge to $30 billion from $42 billion in the past month. Shares of Morgan Stanley closed on Friday at $27.21, up $4.66, or 21 percent. Wachovia’s market capitalization is $40 billion.

The Wall Street Journal reported that CIC’s interest may be contingent on Wachovia being able to offload some of its mortgage assets, the Journal said. The CIC discussion has been preliminary and has not been raised with Wachovia’s board, the paper said.

CIC dampened speculation on Friday that it could be ready to increase its stake in Morgan Stanley as a senior CIC official was quoted by the Xinhua news agency as saying Morgan Stanley and Goldman Sachs were capable of tackling their problems on their own.

However, sources familiar with the plans told Reuters on Thursday that CIC, which bought 9.9 percent of Morgan Stanley last December, is in talks to raise its holdings to as much as as 49 percent.

By Jessica Hall
(Additional reporting by Ben Klayman in Chicago, Megan Davies, Paritosh Bansal and Joseph A. Giannone in New York; Editing by Eric Walsh) (For more M&A news and our DealZone blog, go to here)