Get Ready, Morgan Stanley Takes Its Place On Firing Line

(MoneyWatch)  It's Morgan Stanley's turn in the spotlight. Whether it likes it or not.

Morgan reports quarterly earnings tomorrow, and there's investor concern the results will fall below expectations. More disturbing: The possibility the investment bank's balance sheet is fast deteriorating, brought down by heavy exposure to the subprime mortgage market and other weak investments.

While Morgan is expected to miss analysts' earnings consensus of 80 cents per share, a really lousy earnings report and business forecast could sink the stock price. A severe drop could force Morgan to hunt for a deep-pocketed savior.

Under that scenario, Morgan could end up selling to a commercial bank and following a path taken this week by competitor Merrill Lynch, which was acquired for $50 billion in stock by Bank of America.

Right now, investors are bracing for bad news. Argus Research just downgraded Morgan's stock to a hold from a buy.

At least one observer thinks Morgan's fate is already sealed. Economist Nouriel Roubini, who has been extremely bearish but accurate about the depth of this financial crisis, predicts that independent investment houses like Morgan and Goldman Sachs are on the way out.

He's urging Morgan and Goldman to quickly find buyers.