Sector Snap: Investment Banks

Morgan Stanley shares posted the largest decline, falling $1.72, or 4.5 percent, to $36.85.

During the week ending July 17, announced mergers and acquisitions activity totaled $111.7 billion, more than double the weekly average of $49 billion for 2008, Wachovia Capital Markets LLC analyst Douglas Sipkin wrote in a research note.

Investment banks derive fees from managing and consulting on mergers and acquisitions. Improved M&A activity could also be a sign of improvement in the broader credit markets, which have been struggling for the past year amid deterioration in the mortgage and lending markets.

Shares of Merrill Lynch & Co. slipped 11 cents to $30.80.

Late Thursday, Merrill Lynch announced a wider-than-expected $4.89 billion, or $4.97 per share, second-quarter loss. Analysts polled by Thomson Financial, on average, forecast a loss of $1.91 per share for the quarter.

Merrill also said it was selling assets--its stake in media company Bloomberg LP for $4.4 billion and its Financial Data Services Inc. subsidiary for $3.5 billion--to help shore up its balance sheet.

Like most other investment banks, Merrill Lynch was hit hard by continued deterioration in the credit and mortgage markets. The investment bank took $9.4 billion of charges and write-downs from mortgage-backed securities, unprofitable hedge positions, and residential mortgage exposure.

As mortgages have increasingly defaulted over the past year, investors have shied away from purchasing debt backed by the troubled loans and other risky debt. That has led to a sharp decline in the values of the securities, which in turn has forced banks to cut the value of their holdings.

Elsewhere among investment banks, Goldman Sachs Group Inc. shares fell $1.95 to $180.89.

Lehman Brothers Holdings Inc. shares declined 45 cents to $18.66.