UPDATE 1-Morgan Stanley CEO tells staff exploring options

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BY Joseph A. Giannone

NEW YORK, Sept 18 (Reuters) - Morgan Stanley (MS.N) Chief Executive John Mack reassured employees on Thursday that, while the No. 2 U.S. investment bank was on solid footing and could remain independent, it was exploring a number of moves it could pursue to get through the current financial turmoil.

Mack addressed employees worldwide to recount the events of the past weekend -- the Lehman Brothers Holdings Inc (LEHMQ.PK) bankruptcy and the near collapse of insurer American International Group Inc (AIG.N).

He repeated his assurances that Morgan Stanley remained in strong financial health, according to two people who heard the video broadcast, according to two people who heard the presentations.

Yet he also revealed the firm was pursuing multiple options in case the recent plunge in its share price and the rising cost of its debt-default insurance, continue. He confirmed merger talks were underway with regional bank Wachovia Corp WB.N and spoke about his proposal for a deal with Citigroup Inc (C.N), which was rebuffed.

Mack also described new discussions with China Investment Corp, a sovereign fund that invested $5 billion in the firm last December, about a larger investment.

Morgan Stanley declined to comment on the meeting.

Morgan Stanley shares have plunged by more than half this week amid anxiety about the risks faced by broker dealers. Goldman Sachs Group Inc (GS.N), the largest investment bank, has seen its shares fall by as much as 36 percent this week.

Among other highlights, Mack told employees that senior management were not selling their shares in the firm, according to the sources. He made no recommendation of any kind to employees about their own holdings.

Mack also said he had reached out to federal regulators and Goldman Sachs Chief Executive Lloyd Blankfein to discuss his concerns about the systemic risks short-sellers pose to the markets, the sources said.

He reassured employees that, while some money has left prime brokerage in recent weeks, even a complete withdrawal by all customers would have minimal impact on firm's liquidity.

Morgan Stanley Co-President Walid Chammah said that, since Lehman Brothers filed for bankruptcy and Merrill Lynch & Co Inc MER.N agreed to be acquired by Bank of America Corp (BAC.N), Morgan has picked up 16 investment banking mandates in Europe. (Editing by Andre Grenon)