THE BASIS POINT

Morgan and Goldman to Become Commercial Banks, Ending Big Investment Bank Era

 

Leave it to the top dealmaking firms in the world to strike landmark deals that fundamentally change the financial world. The Fed approved applications from Goldman Sachs and Morgan Stanley to be come traditional banks, so they will sidestep any need to merge with existing banks and instead become competitors of the last big banks standing (links below). They were the last two massive pure-breed investment banks standing in the wake of the credit crunch, and their conversion to commercial/retail banks is the end of an era on Wall Street. But there still will be boutique investment banks, so it’s not truly the end.

This means stricter capital requirements, and the path forward will involve two things: (1) more delevering and disposition of bad assets they may be holding, which seems to be less than Bear, Lehman and Merrill judging by their ability to stay afloat, and (2) raising money by either buying retail banks or taking on deposits as quickly as possible. These are marquee brands, and with only Chase, BofA, Wells and Wachovia left as major viable players (albeit each with their own baggage, Wells probably the least), these two brands will certainly attract assets.

 

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