World Banking Sector In Turmoil

In the US Morgan Stanley is said to be considering a merger with Watchovia Corp. Such a deal would leave Goldman Sachs as the only independent Wall Street investment bank, after Merrill Lynch sold itself to Bank of America to avoid the same fate as bankrupt Lehman. Shares in Morgan Stanley and Goldman, the biggest U.S. securities firms, tumbled the most ever yesterday as the deepening credit crunch fueled concerns about their ability to fund themselves without the access to deposits that banks have.

Wachovia itself, the fourth-largest U.S. bank, plunged 21 percent yesterday after saying it would support $494 million of Lehman credits held by its Evergreen Investments money market funds.

CNBC reported Morgan Stanley is in talks to possibly be acquired by China's Citic Group, citing an unidentified person. Beijing-based Citic Group is China's largest state-owned investment company. Citic Securities Co., 23.4 percent owned by Citic Group, in March abandoned a proposed $1 billion investment in Bear Stearns Cos. after the Wall Street brokerage was bought by JPMorgan & Chase Co.

Credit-default swaps on Morgan Stanley, which insure against a default of the company's debt, rose yesterday to levels typical of companies in distress. Sellers of credit-default swaps on Morgan Stanley demanded as much as 21 percentage points upfront and 5 percentage points a year today to protect the company's bonds for five years, according to broker Phoenix Partners Group. That means it would cost $2.1 million initially and $500,000 a year to protect $10 million in bonds.

Deutsche Bank AG has said it is taking steps to slow credit-default swap trades that expose it to the risk of failure among Wall Street firms, according to three investors told of the policy.

Lloyds TSB's takeover of HBOS to save Britain's biggest savings bank from collapse could see 1,000 branches closed and cost 40,000 jobs according to the Times.

In Australia this morning Macquarie Group Ltd., Australia's largest investment bank, plunged a record 23 percent on fears for it's safety in the face of a global financial meltdown.