Morgan Stanley and Goldman Sachs set out to convince the markets yesterday that the independent investment bank model was not broken. They gave it a good shot.

For once, Morgan Stanley signficantly outpaced its archrival with earnings falling just 3 per cent to $1.43 billion in the third quarter. Stripping out the gain on the sale of shares in MSCI, its index arm, the fall was nearer a quarter. But the underlying performance looked very solid in the circumstances, with good showings from equities, prime brokerage, commodities and foreign exchange trading.

Goldman’s 70 per cent fall in net income was also better than analysts had been expecting. And of course, the results were far better than the recent ones from Merrill Lynch (bought at the weekend) and Lehman Brothers (collapsed at the weekend).

But the 40 per cent fall in investment banking revenue underlines the challenge both face while trading and principal investments – the engine of Goldman’s astonishing growth in recent years – were down 67 per cent. Morgan Stanley brought forward its earnings, due today, after a sharp fall in its share price yesterday morning. They closed down 11 per cent yesterday but were up 6 per cent in after-hours trading while Goldman slipped 2 per cent.

Goldman and Morgan Stanley dismiss the suggestion that they need to team with retail banks to provide the stability required in the post credit-crunch world.

But the suggestion that they may be unable to survive, or at least to thrive, as independent brokerages does not seem as ridiculous as it would have done a few days ago.

Lehman’s death spiral was a reminder of how dependent these banks are on confidence and how a a slump in the share price can become a self-fulfilling prophecy.

A few more shocks like Lehman or AIG could trigger a further wave of panic, prompting lenders, trading partners and customers to question their involvement even with the mighty Goldman and Morgan Stanley.

Both have more convincing to do.

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