September 19, 2008 / 2:40 PM / 10 years ago

UPDATE 1-Morgan Stanley-Wachovia deal more likely: Merrill

(Recasts; adds details, share movement)

Sept 19 (Reuters) - An acquisition of Morgan Stanley (MS.N) by Wachovia WB.N is becoming more likely as recent volatility in Morgan Stanley’s shares has made it more attractive for Wachovia, a Merrill Lynch analyst 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 Friday’s early morning gains, shares of Morgan Stanley have fallen 32 percent since Monday, while those of Wachovia have fallen about 18 percent.

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 percent at $29.46 and those of Wachovia were trading up more than 20 percent at $17.67 in morning trade on the New York Stock Exchange amidst a broader market rally led by financial stocks. (Reporting by Sweta Singh in Bangalore; Editing by Amitha Rajan)

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