Morgan Stanley "very confident" in model

By Joseph A. Giannone

NEW YORK (Reuters) - Morgan Stanley Chief Financial Officer Colm Kelleher on Tuesday said the No. 2 U.S. investment bank remains confident in its broker-dealer model and dismissed the need to merge with a deposit-taking bank, even as he maintained a cautious stance about the markets.

With three of the top five U.S. investment banks melting down or rushing into mergers with commercial banks, analysts in the past week questioned whether broker dealers are too vulnerable in a financial crisis. Commercial banks can tap deposits to fund their business when markets are jittery.

Yet Kelleher dismissed the idea that investment banks had an unsustainable model.

"The diversification of the businesses in capital markets is what drives the broker-dealer model," Kelleher told Reuters in a brief phone interview. "More important, investment banks have the ability to reinvent themselves and innovate many times throughout a cycle."

Kelleher's views echoed those made earlier today by Goldman Sachs Group Inc CFO David Viniar,

A day earlier than scheduled, Morgan Stanley announced a 3 percent drop in third-quarter earnings. The firm trounced the market's reduced expectations and hoped the results would quell speculation that Wall Street banks were all struggling.

"I'm very confident about the business model," he said.

However, Kelleher said he remained "clearly cautious about the markets," noting recent events show markets are still incredibly unpredictable and challenging.

But over time, Kelleher contended, markets will rebound and investors value the firm's capacity to win business and adapt to different conditions.

"It's just been a remarkable time of turbulence, where fear is ruling," he said. "If you can be confident and instill confidence, you're going to come out of this very strongly."

Indeed, in a later conference call with analysts, Kelleher made a number of bullish comments about the markets. He also strongly suggested the firm was poised to restart purchases of its stock and would snap up distressed assets.

"We feel we have the ammunition and fire power to take advantage of these markets," he said. "Some of these prices, frankly, have gotten to silly and irrational levels, so we're going to have the ability to take advantage of that. You're now at, I believe, an inflection point in certain asset classes."

(Editing by Leslie Gevirtz and Bernard Orr)