Last major investment banks change status By MARTIN CRUTSINGER, AP Economics Writer 1 hour, 24 minutes ago AP via Yahoo WASHINGTON - The Federal Reserve said Sunday it had granted a request by the country's last two major investment banks -- Goldman Sachs and Morgan Stanley -- to change their status to bank holding companies. ADVERTISEMENT The Fed announced that it had approved the request of the two investment banks. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions. The change continued the biggest restructuring on Wall Street since the Great Depression. The request for the change to bank holding companies was granted by a unanimous vote of the Fed's board of governors during a late Sunday meeting in Washington. The change of status means both companies will come under the direct regulation of the Federal Reserve, which regulates the nation's bank holding companies. The banking subsidiaries of the two institutions will face the stricter regulations that commercial banks are required to meet. Previously, the primary regulator for Goldman and Morgan Stanley was the Securities and Exchange Commission.
WASHINGTON - The Federal Reserve said Sunday it had granted a request by the country's last two major investment banks -- Goldman Sachs and Morgan Stanley -- to change their status to bank holding companies. ADVERTISEMENT
The Fed announced that it had approved the request of the two investment banks. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions.
The change continued the biggest restructuring on Wall Street since the Great Depression.
The request for the change to bank holding companies was granted by a unanimous vote of the Fed's board of governors during a late Sunday meeting in Washington.
The change of status means both companies will come under the direct regulation of the Federal Reserve, which regulates the nation's bank holding companies. The banking subsidiaries of the two institutions will face the stricter regulations that commercial banks are required to meet. Previously, the primary regulator for Goldman and Morgan Stanley was the Securities and Exchange Commission.
But who's going to want to put their deposits with MS or GS?
Nouriel Roubini has predicted GS and MS would go the way of Lehman and Merrill Lynch - either merging or being taken over by a commercial bank. After the rumours that Wachovia and MS were in merger talks, now GS and MS are trying to simply become commercial banks? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
This is another naked attempt to grab federal insurance - aka a bailout - for their liabilities. Some creative accounting will move the debt from one place to another.
They're probably hoping that with Paulson's planned new superpowers they won't be held accountable.
But given that no one is buying Paulson's beatification - not even Newt Gingrich - the plan may not be the success they're hoping for.
I think that's right. The key is this line from the FT story I quote in my parallel comment:
During the transition period, the Fed will make loans to both entities and to the broker-dealer subsidiary of Merrill Lynch against collateral acceptable for posting either by a bank or a securities firm.
In a statement issued at 9.30pm Sunday, the Federal Reserve said it had approved their applications to become bank holding companies, subject to regulation by the Fed. During the transition period, the Fed will make loans to both entities and to the broker-dealer subsidiary of Merrill Lynch against collateral acceptable for posting either by a bank or a securities firm. The Fed will also lend to Goldman, Morgan and Merrill's London-based broker dealer subsidiaries directly. The Fed approval is subject to a five-day waiting period for potential antitrust issues.
The Fed will also lend to Goldman, Morgan and Merrill's London-based broker dealer subsidiaries directly.
The Fed approval is subject to a five-day waiting period for potential antitrust issues.
Investment bank Morgan Stanley said Monday it signed a letter of intent to sell up to 20 percent of the company to Mitsubishi UFJ Financial Group Inc. Financial terms of the deal were not disclosed. If the deal is completed, the price would be based on Morgan Stanley's book value after Japan's largest bank completes a due diligence review. The letter of intent signed by both banks is nonbinding. The framework for a deal comes just hours after Morgan Stanley, one of Wall Street's biggest investment banks, received regulatory approval from the Federal Reserve to become a bank holding company -- making it a commercial bank and allowing it to receive deposits. Morgan Stanley will also now be regulated by the Fed instead of the Securities and Exchange Commission.
Financial terms of the deal were not disclosed. If the deal is completed, the price would be based on Morgan Stanley's book value after Japan's largest bank completes a due diligence review. The letter of intent signed by both banks is nonbinding.
The framework for a deal comes just hours after Morgan Stanley, one of Wall Street's biggest investment banks, received regulatory approval from the Federal Reserve to become a bank holding company -- making it a commercial bank and allowing it to receive deposits. Morgan Stanley will also now be regulated by the Fed instead of the Securities and Exchange Commission.
I'm getting a very uneasy feeling about all this.
:-)
