Morgan Stanley in Distress

The good thing about the fact that both Goldman Sachs and Morgan Stanley just released their quarterly earnings is that we have up-to-the-minute information on what (they say) their book value is. For Goldman it's $99.30 per share; for Morgan Stanley it's $31.25.

So as of right now, Goldman, down 23% on the day, is basically trading at book value; Morgan Stanley, down 31%, is trading on a much more distressed, and distressing, price-to-book ratio of about 0.63.

For comparison, Merrill Lynch's price-to-book ratio, based on its second-quarter book value of $21.43 per share, is presently about 0.91. Of course, Merrill is a merger-arb play, not a value play. But clearly the market is saying that Morgan Stanley should find an acquirer fast. It's directly across the street from Lehman Brothers: its executives are reminded every time they look out the window what the alternative is.

Oh, and one other thing: no, Goldman Sachs is not an acceptable acquirer for Morgan Stanley. It needs to be a big commercial bank with a solid deposit base. Um, any Canadians interested? The shortlist on this side of the border is looking decidedly, well, nonexistent, unless you include the US government as buyer of last resort.