Wachovia acquisition of Morgan Stanley likely

New York: An acquisition of Morgan Stanley by Wachovia is becoming more likely as recent volatility in Morgan Stanley's shares has made it more attractive for Wachovia, a Merrill Lynch analyst has said.

The recent jump in the shares of Wachovia has also made a deal much easier, analyst Guy Moszkowski of Merrill wrote in a note to clients.

Excluding yesterday's early morning gains, shares of Morgan Stanley have fallen 32 per cent since Monday, while those of Wachovia have fallen about 18 per cent.

Morgan Stanley has managed its risk quite well and has significantly reduced exposures to more toxic assets, but it will be important to note the degree to which credit risk of Wachovia can be defused at the time of a deal, Moszkowski said.

Merrill Lynch had earlier voiced concerns over a possible Morgan Stanley-Wachovia merger, saying Wachovia had very large bad credit exposure that would increase credit risk for Morgan Stanley shareholders.

Shares of Morgan Stanley were trading up more than 30 per cent at $29.46 (Dh 108) and those of Wachovia were trading up over20 per cent at $17.67 in morning trade on the New York Stock Exchange amidst a broader market rally led by financial stocks.