Morgan Stanley is in preliminary merger talks with Wachovia, the troubled regional lender, and exploring other potential deals in an effort to avoid becoming the next victim of the credit crunch.
The bank is also in close contact with a leading shareholder, China Investment Corporation, which owns a 9.9 per cent stake.
CIC was previously part of the Bank of America-led consortium that was considering a takeover bid for Lehman Brothers, alongside JC Flowers & Co. Christopher Flowers manages about $3.2bn of CIC's money in a fund dedicated to taking stakes in financial institutions.
Gao Xiqing, president of CIC, is currently in the US accompanied by Wei Sun Christianson, the head of Morgan Stanley in China. Wang Qishan, China's vice-premier who is in charge of the financial sector, is also in the US for bilateral trade talks.
It is believed to be highly unlikely that CIC would take over the US bank on its own.