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A few days ago, it would have been nearly impossible to believe that the deals for Bank of America (BAC) to buy Merrill Lynch (MER), for Mitsubishi UFJ to buy 20% of Morgan Stanley (MS), or for Wells Fargo (WFC) to buy Wachovia (WB) could fall apart.

That may have changed in the last 24 hours. Moody’s has warned it may cut the long-term debt ratings of Morgan Stanley (MS) and its stock has been down as much as 30% during several of the most recent trading sessions. It closed yesterday at $12.45.

The potential downgrade by Moody’s is only the tip of an iceberg. With credit instruments and mortgage-backed paper almost certainly continuing to fall in value, the assets on the Morgan Stanley balance sheet are almost certainly losing a great deal of their value. MUFJ, which is probably having credit issues of its own as the Japanese markets falter, could simply decide the transaction is too risky and walk away.

There also are problems which may arise in the Bank of America/Merrill Lynch deal. Bank of America’s stock is down to under $20 due to concerns that all bank creditworthiness is faltering and lack of interest in the financial company’s recent stock offering. It is almost certain that Merrill’s balance sheet has been damaged over the last week. It has already written off billions of dollars for the value of its impaired assets. Bank of America may look at Merrill and decide that it cannot field the due diligence necessary to re-examine the brokerage company’s balance sheet. Even if it could, it a failing market, those figures are a moving target.

Perhaps the deal most at risk is the Wells Fargo (WFC) takeover of Wachovia (WB). Both WFC and Citigroup (C) found that the Wachovia balance sheet was weaker than expected. Citigroup, which has dropped out of the bidding, wanted FDIC backing for much of the Wachovia asset base. Wells Fargo decided to move forward without any government assistance, It may regret that as it is likely that Wachovia’s balance sheet is almost certainly more compromised than it was a week ago.

The crisis has made for odd and unexpected marriages between financial companies. It may have come to the point where it also causes some divorces.

Douglas A. McIntyre