Goldman and Morgan Stanley rule out deal

Goldman Sachs and Morgan Stanley, the last two remaining independent investment banks, insisted they would remain independent, even as analysts and traders in the credit markets questioned the viability of their business model.

The cost of insuring the two companies' debt against a default has ballooned since rival Lehman Brothers collapsed at the weekend and Merrill Lynch sold itself to avoid a similar fate, and that cost hit a record yesterday.

Last night, Morgan Stanley brought forward the publication of its latest results to try to calm nerves in the debt markets, saying it had significantly outperformed Wall Street's expectations in the last quarter and had access to $179bn (£100bn) in cash and easily saleable assets.

"I felt it was appropriate given circumstances and turmoil in the market," the company's chief financial officer, Colm Kelleher, said, explaining the decision to bring the results forward. "The market's acting irrationally." He said he had been contacted by other Wall Street executives concerned that traders were playing "games" with financial sector stocks.

Morgan Stanley's profit for the three months to 31 August fell 3 per cent to $1.43bn.

The number of major investment banks has been cut from five to two in the past six months, and analysts have begun debating whether they can survive without bolting their volatile business in the capital markets on to a commercial bank that has a large depositor base for security.

Mr Kelleher said depository institutions "may bring with them their own set of complications" and that he was confident in the existing business model. His comment echoed one from Goldman Sachs' chief financial officer David Viniar earlier in the day, who said a merger was off the table. The difficulties Lehman and others have got into stem from poor business decisions, not a flawed business model, Mr Viniar said.