News and Finance

The disruption tearing through financial markets bounced from Wall Street down to Charlotte, N.C., and out to St. Louis on Thursday.

Wachovia Corp. of Charlotte, one of the nation’s biggest banks, is reported to have held preliminary merger talks with Morgan Stanley, one of the nation’s most storied investment houses. A deal could be aimed at patching weaknesses in each company before the market punishes them.

The talks, reported in the New York Times and the Wall Street Journal, are just the latest in a move among banks to seek partners to weather one of the most dangerous markets in decades.

Wachovia, with a massive presence in retail banking but a smaller footprint in deal-swinging investment banking, may covet Morgan Stanley’s expertise in mergers and acquisitions and initial public offerings. Wachovia also may want to dilute its exposure to bad house loans in California and Florida.

Morgan Stanley, meanwhile, is trying not to be victimized by concern about its financial strength that could lead to a crisis of confidence despite the firm’s diversified revenue and vaunted risk-management practices. Morgan Stanley, which reportedly also has talked with other possible partners, is "exploring all of its options," said one source close to the matter.

Both companies declined to comment.

Reports of a potential deal came after financial shares took a pounding in the last week as fear cut through the market.

Wachovia lost 36 percent of its market value between Friday and Wednesday. Morgan Stanley’s stock lost 42 percent in that period, dropping to a 10-year low Wednesday.

Financial stocks, however, rallied Thursday — Wachovia was up 59 percent for the steepest rise in more than a quarter-century — on hopes that the federal government would buy bad debt to soothe the credit crisis.

Thanks to its $6.8 billion takeover of A.G. Edwards last year, Wachovia is one of the biggest players in St. Louis’ financial circles, with about 4,800 local employees and an imposing office complex near downtown. St. Louis is the headquarters for Wachovia Securities, the North Carolina-based company’s retail brokerage business.

It’s far too early to know what a Wachovia-Morgan Stanley merger might mean for St payday loan cash advance loan. Louis. Morgan Stanley has its own retail brokerage operation, which is about one-third the size of Wachovia’s. It is unclear at this point if a merged company would keep the securities headquarters in St. Louis or move it.

"It wouldn’t surprise me" if Wachovia kept its retail brokerage business headquartered in St. Louis, said Dave George, managing director at Robert W. Baird & Co. in Clayton. "There’s a significant amount of infrastructure" here, and it’s cheaper to run a big operation in St. Louis than in New York, he said.

With Edward Jones, Scottrade and Stifel Nicolaus, the St. Louis region is second only to New York as a hub for retail investment advisers, said Richard Fleming, president of the St. Louis Regional Chamber and Growth Association. "From location to cost to the type of work force that this industry needs, those are all positive trends," Fleming said.

Wachovia moved its securities headquarters here from Richmond last year, when it bought A.G. Edwards. Since the merger, some corporate functions have been eliminated and some research and investment banking jobs have been cut or moved. But other jobs have been brought here from Richmond. In all, employment is up a bit, to about 4,800.

That makes Wachovia the region’s 14th-largest private employer. The company’s campus takes up several blocks west of downtown.

Since the merger, Wachovia has launched an ad campaign locally touting the fact that it is "with St. Louis" and it has been a strong donor to various local charities.

In a statement this week, Wachovia said it is "firmly committed" to its brokerage division and has no plans to sell it.

Teaming up with Wachovia clearly would be a defensive move by Morgan Stanley, said Radha Gopalan, assistant professor of finance at Washington University. The New York investment bank is overleveraged — with too much debt on its balance sheet compared to equity — he said. Mortgage-backed assets are deteriorating, and key businesses such as private equity and leveraged buyouts are faltering, he said.

Wachovia, meanwhile, is "out for the bargain," said