Morgan Stanley Dazzles, Sort Of

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Whoa. Did I really write that? Did Morgan Stanley (NYSE: MS  ) really come out with dazzling results 48 hours after downtown rival Lehman Brothers (NYSE: LEH  ) went bankrupt?

Amazingly, yes, it's true. Well, kind of.

This patient's still got a pulse
Morgan Stanley earned $1.4 billion, or $1.32 per share in the third quarter, just pennies below the $1.38 per share earned in the same period last year, when investment banking was still an admirable trade. Net revenue came in at $8 billion, a hair more than the same period last year. All in all, it was a pretty impressive quarter.

But that was last quarter. What about going forward?
Underlining all the good news lies the same issue Goldman Sachs (NYSE: GS  ) is going to have to acknowledge in the coming months and years: The future of the investment banking world is bound to look absolutely nothing like it does today.

For Morgan Stanley and Goldman, that could mean one of a few things. Either they end up merging with a retail bank like Wells Fargo (NYSE: WFC  ) or Washington Mutual (NYSE: WM  ) to gain access to deposits that provide a stable source of capital, or they're going to get regulated into the floor by a government that's been caught asleep at the wheel. Former independent investment bank Merrill Lynch (NYSE: MER  ) , which executed an emergency sale to Bank of America (NYSE: BAC  ) over the weekend, took the first approach, which may have been its only option after the land mines left by Lehman.

Please don't wait until it's too late
Both Morgan Stanley and Goldman expressed their reluctance to give up their current independent structures. For both firms' shareholders, that's probably not the best of news. If the prevailing thought that the current investment banking system is broken turns out to be correct, holding onto the past and not addressing problems until the last second is a recipe for shareholder destruction. Every financial collapse this year -- Bear Stearns, Lehman, Mac 'n' Mae, and AIG -- came extremely suddenly and with little warning. After a wretched week of financial failures, let's just hope the remaining survivors won't bury their heads in the sand.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Bank of America is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.

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