As the turmoil on Wall Street claimed two more victims over the weekend, investors’ attention has increasingly focused on Goldman Sachs Group (GS) and Morgan Stanley (MS) as they prepare for third quarter earnings reports later this week.

Investors will be looking for executives at both banks to soothe lingering fears that neither will face the same fate as former competitors Bear Stearns, Lehman Brothers (LEH) and Merrill Lynch (MER), all victims of the ongoing credit crunch brought on by a depressed housing market.

Bear Stearns was absorbed by JPMorgan (JPM) during a fire sale in March. On Monday, Lehman Brothers filed for bankruptcy, while Merrill Lynch announced plans to sell itself to Bank of America (BAC).

“This is where leaders are shaped,” said Axel Merk, manager of the $400 million Merk Hard Currency Fund.

Merk said investors want to know what strategies bank executives are taking to avoid losing their independence either through mergers, or worse, bankruptcy.

“It’s important to hear what their strategies are. The industry has changed, and it’s important to hear how they are adapting to it,” he said.

Goldman's and Morgan Stanley’s top executives will have to be convincing because both firms are expected to post sharply reduced earnings from a year ago.
Analysts polled by Thomson Reuters have predicted that Goldman’s third-quarter earnings will be down 72% from 2007. Morgan’s earnings are expected to fall 44%. And both banks are likely to announce writedowns of between $1 billion and $2 billion.
But reporting any earnings at all is a far cry from most of their competitors. Lehman recently reported a quarterly loss of nearly $4 billion and write downs of $7.8 billion.

Specifically, some investors will be watching how Goldman weathered the recent decline in commodity prices.
Goldman, arguably the gold standard in investment banks, emerged from the subprime mortgage meltdown without a scratch. Indeed, the firm capitalized on the housing decline as its competitors reeled.

But its position in oil, for instance, is not widely known, and investors are curious whether they placed themselves on the right side of that bet as well.

Merk said he is confident that Goldman will withstand the current turmoil with minimal damage.

“They’ve been much more prudent” than some of their competitors, he said. “I’m not worried about Goldman. I don’t think they’ll have a problem remaining independent.”

Morgan Stanley, meanwhile, was battered by its mortgage investments, but has emerged on its feet and many of its wide-ranging operations are generating profits.

What’s more, Bank of America analyst Michael Hecht said in a recent note that both firms should benefit from “stronger customer flow as other firms face” more substantial troubles related to bad debt.