One of the dramatic financial news item over the weekend of course was the conversion of the last two investment banks, Goldman Sachs (GS) and Morgan Stanley (MS) into bank holding company structures, with the blessing of the Government. As BusinessWeek notes:
"The standalone investment bank died quietly Sunday, Sept. 22, 2008, after a brief but dramatic illness. It was 75 years old.
On Sunday night, Goldman Sachs and Morgan Stanley said they would become bank holding companies, submitting to the authority and oversight of federal banking regulators. After the collapse of Bear Stearns, the bankruptcy filing of Lehman Brothers and the agreement by Merrill Lynch to be acquired by Bank of America, Goldman and Morgan were the last remaining investment banks.
Goldman noted that the move would make it the fourth biggest bank holding company in the U.S. Morgan said it was seeking “maximum flexibility and stability to pursue new business opportunities as the financial marketplace undergoes rapid and profound changes.”
The Fed said it had approved the switch, with allowances for a five-day waiting period to clear any anti-trust hurdles; the banks’ broker-dealer units, along with Merrill’s, will also be able to borrow from the New York Fed.
The move is likely to subject the companies to stricter regulation, requiring them to retain more capital and take fewer risks than they could as investment banks.
The announcement was made without much fanfare (as the New York Times said), and may also make regulatory reform somewhat easier for the next president and Congress. Instead of two kinds of regulated entities, they could well face the need to consider just one."
Much of the media coverage today seems to be focused on how Goldman Sachs is humbled by becoming 
"just" an ordinary commercial bank, knocked off it's lofty perch as the most eminent of global investment banks.
And the consensus seems to be on how Goldman is going to have to "settle" financially and culturally for being a commercial bank.
There's no question that these moves were in response to some historically major financial market factors, and that all financial industry participants to have to struggle mightily just to survive the difficult times ahead.
This thought though, comes to mind.
Maybe it's just the emotions of a former lifer at Goldman Sachs, but I can't help but think that Goldman may be a commercial bank in structure and name, but that it's unique DNA and culture will not only adapt, but thrive in the long-term under it's new structure.
The thought that comes to mind in fact is that Goldman with this move may have just become the wolf in sheep's clothing (image source). And of course there'll likely be some sheep that try to be a wolf.
DISCLOSURE: I'm a long-time shareholder and former employee of GS.
Michael,
What is to stop Goldman Sachs from spinning of its investment banking (shedding its commercial banking) after the crisis is over?
Lehman was absorbed by Shearson, then Amex, before going private again, Morgan Stanley followed a similar path.
I wouldn't bet that this is the end of a private GS, rather an interregnum while the hounds are baying.
Posted by: Alex Tolley | Tuesday, September 23, 2008 at 12:02 AM