Morgan Stanley and Goldman Sachs, the last two independent Wall Street investment banks, saw their shares slide further Thursday amid growing pressure to find merger partners to ride out the financial storm, analysts said.
Morgan Stanley slumped 8.97 percent and Goldman Sachs skidded 4.93 percent in late morning trade after heavy losses earlier in the week.
"Morgan Stanley remains in focus amid worries the investment bank could be the next to fall," analysts at Charles Schwab & Co. said in a briefing note.
It cited reports that indicate the company is talking to Citigroup, China's CITIC Group, and the British-based HSBC Holdings a day after unverified reports about talks with Wachovia about a potential merger.
"Morgan Stanley reported earnings a day early in order to calm worried markets. Despite the strong profit number, fears about the valuation of complicated securities and short-term funding concerns dragged shares sharply lower," the Schwab analysts said. "Separately, Goldman Sachs remains in the spotlight, and shares are weaker."
The collapse over the weekend of Lehman Brothers after it failed to find a buyer and a simultaneous deal by Merrill Lynch to sell itself to Bank of America has left the remaining two Wall Street firms vulnerable, according to analysts.
"The drop in Morgan Stanley's stock in yesterday's trade came as credit fears overshadowed the company's solid third-quarter earnings," said analysts at Briefing.com.
Another Wall Street investment giant, Bear Stearns, disappeared earlier this year after a near-meltdown in shares forced a tie-up with JPMorgan Chase backed by the Federal Reserve.
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