Reports: Morgan Stanley, Wachovia in talks

NEW YORK -- John Mack, Morgan Stanley's chief executive, received a call from Wachovia about a potential deal, according to The New York Times and Wall Street Journal. Both newspapers cited people familiar with the discussions.

CNBC reported that Morgan Stanley was having deal discussions with CITIC, the China-controlled conglomerate that owns brokerage firm CITIC Securities.

Other banks have also expressed interest in Morgan Stanley, according to the reports. The talks are described as preliminary.

Spokesmen for Morgan Stanley and Wachovia declined to comment.

If a deal with Wachovia did go through, Morgan Stanley would be the fourth major investment bank to disappear from the scene since June as the year-old credit crisis builds momentum. In the past four days, the U.S. financial services industry has been through the biggest consolidation wave in a decade.

A deal would marry a company with a dominant investment bank and trading business with Wachovia, the No. 4 U.S. commercial bank with branches spanning 21 states. It would also create the largest retail brokerage force in the country with more than 20,000 advisers.

Many analysts and investors have questioned the wisdom of combining two banks that have been burned by the spreading credit crisis that began with plunging mortgage prices and spread to commercial real estate.

"Two wrongs don't make a right," said James Ellman, a fund manager and president of SeaCliff Capital in San Francisco. "Hasn't Mr. Market been saying both companies possibly are going to fail? If you put them together, how does that make a better company?"

Morgan Stanley reported stronger-than-expected results as well as a robust levels of cash and capital on Tuesday, its latest solid performance since suffering about $10 billion in mortgage trading losses late last year.