Wall Street Journal: Goldman Sachs, Morgan Stanley Grasp at Bitter Prize

Goldman Sachs Group and Morgan Stanley look like survivors in Wall Street's purging of stand-alone investment banks. But the prize will be bitter.

The investment banks report results this week for their fiscal third quarter, which ended in August. Analysts expect a profit from both but have slashed estimates in recent months amid the firestorm in financial markets.

Goldman and Morgan aren't only in better shape than other bulge-bracket investment banks — but they also may soon be the only ones left. The credit crisis has eliminated Bear Stearns and is pushing Lehman Brothers toward liquidation. (Lehman, which prereported last week, is scheduled to formally report third-quarter earnings on Thursday.) Merrill Lynch, due to report results next month, struck a deal to sell itself to Bank of America. It is trailing its peers, thanks to its still-sizable exposure to the mortgage market.

Life isn't much easier for the survivors, however. The economy is slowing, markets are tumultuous and deal making is lethargic. Companies are raising less cash in capital markets, and hedge funds are going belly-up. Banks are shedding the leverage, or borrowed money, that turbo-charged their revenue. In the longer run, the industry faces tighter regulation and a barren market for slicing and dicing debt into securities.

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