Morgan and Goldman take a beating

Just a day after reporting better-than-expected results, shares of the nation's top two investment banks plummet.

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By David Ellis, staff writer

Shares of the nation's leading investment banks have tumbled along with the rest of the financial services sector in recent days.
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NEW YORK ( -- Shares of Morgan Stanley and Goldman Sachs plummeted to multi-year lows Wednesday, even as both firms surprised the rest of Wall Street with better-than-expected quarterly results just a day earlier.

Goldman Sachs (GS, Fortune 500) shares plunged 14% Tuesday, at one point falling below $100 a share for the first time since June 2005. Morgan Stanley (MS, Fortune 500) shares dropped to their lowest level in close to a decade, before finishing 24% lower.

The selloff in the two investment banks picked up in late morning trading as fears about the U.S. financial services sector continued to engulf financial markets worldwide, following news of the Federal Reserve's $85 billion emergency loan to insurance giant American International Group (AIG, Fortune 500) late Tuesday night.

Hoping to provide some clarity about the firm's health, Morgan Stanley delivered its quarterly results late Wednesday - a day earlier than expected.

"It is very important to get some sanity back into the market," Colm Kelleher, Morgan Stanley's chief financial officer, said in a conference call with analysts.

The nation's No. 2 investment bank posted a net profit of $1.43 billion, or $1.32 per share, which handily beat Wall Street estimates.

Just hours earlier, Goldman Sachs reported that its profit fell sharply from a year ago, but still managed to blow past estimates.

Both Goldman and Morgan have largely avoided the painful losses and writedowns that many of their peers have endured as a result of bold bets on the U.S. housing market.

Still, the past three months have been difficult for all securities firms given the wild swings in the market and with investment banking activity at a standstill.

Some analysts have speculated that the traditional way of doing business on Wall Street may no longer be viable given the current crisis. Yet, top executives at both Goldman and Morgan reiterated their commitment to the business model Tuesday, saying they had no interest in buying or merging with a commercial bank.

"We believe in the diverse business model of the investment bank and its ability to adapt to different environments," said Kelleher.

This week has marked an unprecedented time for the U.S. financial services industry.

In addition to the Fed's bailout of AIG announced late Tuesday, on Monday the investment bank Lehman Brothers (LEH, Fortune 500) filed for bankruptcy and Bank of America (BAC, Fortune 500) agreed to acquire the Wall Street icon Merrill Lynch (MER, Fortune 500) for $50 billion.  To top of page

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