Morgan Stanley and Goldman Sachs Group Inc., the biggest independent US investment banks, may reap cash infusions as part of Treasury Secretary Henry Paulson's plan to buy stakes in financial institutions, investors said. Paulson, in a statement yesterday, said the US will purchase equity in a “broad array'' of banks and other financial firms to restore market stability and ensure economic growth. The Treasury is working on a “standardized program that is open to a broad array of financial institutions,'' he said. Morgan Stanley Chief Executive Officer John Mack, 63, and Goldman Sachs CEO Lloyd Blankfein, 54, failed to regain investor confidence by converting their firms into bank holding companies last month and raising new capital from private investors. Morgan Stanley's stock dropped almost 60 percent this week, while Goldman's fell 29 percent. “Based on the fact that they're allegedly commercial banks now and are moving that way, I think they're likely to get protection,'' said Benjamin Wallace, an analyst at Grimes & Co. at Westborough, Massachusetts, which manages about $700 million. “Whatever solution they come up with for the banking industry as a whole will apply to them, because they're no longer special.'' Michele Davis, a spokeswoman for the Treasury, declined to comment. Morgan Stanley and Goldman were among the most profitable firms in Wall Street history and paid out $36.7 billion in compensation and benefits to employees for 2007. Both investment banks stayed profitable through the first three quarters of this year. Lehman's bankruptcy on Sept. 15 ignited investor fears about Goldman and Morgan Stanley. To try to win back confidence, the firms obtained Federal Reserve approval to become bank holding companies. Goldman raised $10 billion on Sept. 24 from Warren Buffett's Berkshire Hathaway Inc. and a public share sale. Morgan Stanley struck an agreement to get $9 billion from Japan's Mitsubishi UFJ Financial Group Inc. The accord is scheduled for completion on Oct. 14. Moody's Investors Service added to the concern about both investment banks on Oct. 10, when it placed Morgan Stanley's A1 long-term rating on review for a possible downgrade and lowered its outlook for Goldman Sachs's Aa3 long-term rating to negative. Morgan Stanley's $4.5 billion of 6.625 percent senior bonds that mature in April 2018 fell to 61 cents on the dollar yesterday from 71 cents a week earlier. Paulson won Congressional approval last month to spend as much as $700 billion to buy assets from banks and take equity stakes as part of the so-called Troubled Asset Relief Program, or TARP.
