The conventional wisdom holds that the premise behind Morgan Stanley's desire to merge with a commercial bank is that it deeps the deposits as a capital cushion, which makes sense. But Merrill Lynch analyst Edward Najarian argues that majority of the combined company would still require "market-based funding rather than deposit funding," reports bizjournals. In addition, Morgan would be exposed to more credit risk via Wachovia's troubled debt mortgage portfolio. Wachovia would likely be the main beneficiary. You would have to assume that deposits would help to some degree, especially if Morgan Stanley cuts back on the operations with the highest capital needs. We're at the cusp of a great era of de-leveraging, so the premise may be strong enough for a deal. The real issue is whether Morgan can find a better positioned bank to merge with. The pickings are slim.

For  more:
- here's the bizjournals article

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