Are Wall Street survivors safe?

NEW YORK -- It's getting lonely at the top of Wall Street's investment bank pyramid.

With the financial crisis deepening, the only two major players still standing are Goldman Sachs gs and Morgan Stanley ms.

The mushrooming credit crunch has already taken out Bear Stearns, Lehman Brothers and Merrill Lynch. The big question on the minds of shell-shocked investors is whether the survivors will suffer a similar fate as their ex-rivals.

Goldman Sachs and Morgan Stanley have stronger balance sheets and far less exposure to toxic real estate assets. And that reduces the chances that they will succumb to the kind of stock price destruction, spiraling losses and higher borrowing costs that doomed rivals.

"Will it come to the point where we see the disappearance of Goldman Sachs and Morgan Stanley? I don't think so," says David Stone, a securities lawyer at Neal Gerber Eisenberg. But "you can never rule out a bear attack, or run, on any company," referring to the increasing practice of "short sellers" who exacerbate the downward pressure on stocks by betting that they will fall further. In a short sale, an investor profits by selling borrowed shares with the hopes of buying them back later at a lower price.

Short sellers have been blamed for much of the carnage in stocks like Lehman, Merrill, and beleaguered insurer AIG, which plummeted 61% Monday on fears it lacks sufficient capital to offset mortgage-related losses.

All eyes will be on Goldman today when it reports quarterly earnings. Morgan Stanley reports Wednesday.

Unlike Lehman, which reported a $3.9 billion loss last week, analysts expect both companies to report profits. The short-run outlook for Goldman and Lehman could be turbulent, noted James Mitchell, an analyst at Buckingham Research Group. The winding down of Lehman's assets will depress the values of all assets, he says. Goldman shares tanked 12.1% to $135.50 on Monday, and Morgan fell 13.5% to $32.19.

Citigroup analyst Prashant Bhatia, which downgraded Morgan to hold Monday and upped Goldman's risk rating, also says deleveraging in markets will stress asset values.

But the longer outlook for the so-called survivors is better in a world populated by fewer competitors.

"Before this over, there is going to be a massive changing of the guard," says Gary Kaltbaum, president of Kaltbaum and Associates. "Do not believe anyone is safe."