WaMu Up on Auction Block, Wachovia Could Buy Morgan Stanley

After the massive shakeup in the financial services industry in the past week, more large players could find themselves absorbed by their stronger peers.

Unconfirmed reports swirled Wednesday claiming that Seattle-based thrift Washington Mutual and New York-based investment firm Morgan Stanley were in advanced talks to merge with other banks.

The New York Times reported Wednesday that Washington Mutual had hired Goldman Sachs to conduct an auction for the nation’s largest savings and loan institution. The Times cited unidentified sources that said the auction began several days ago. Wells Fargo, JPMorgan Chase and HSBC were the leading bidders, according to the paper.

The Wall Street Journal also reported on the Washington Mutual auction, adding Citigroup to the list of potential bidders.

Washington Mutual has been very closely watched this past week as its exposure to the subprime mortgage market raised doubts about its ability to maintain an adequate capital base (“Washington Mutual Shares Trade at 17-Year Low as Regulator Monitors,” Sept. 11).

Late Wednesday and early Thursday, media reports also indicated that investment bank and brokerage firm Morgan Stanley was in advanced merger talks with Charlotte, N.C.-based Wachovia. Cable outlet CNBC indicated that Morgan and Wachovia were “ready to enter formal merger talks.”

After the recent bankruptcy of Lehman Brothers and the Bank of America buyout of Merrill Lynch, Morgan Stanley and Goldman Sachs remained as the last two large independent brokerage houses on Wall Street. Bear Sterns collapsed earlier in the year and was taken over by JPMorgan Chase.