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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.
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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.

Does anyone know if this increases their access to FRB "special facilities"?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 22nd, 2008 at 12:32:27 AM EST
[ Parent ]
Wow, just wow.

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

by Migeru (migeru at eurotrib dot com) on Mon Sep 22nd, 2008 at 04:57:29 AM EST
[ Parent ]
Not seriously, no. They'll most likely open one commercial branch each in the cellar of a warehouse in North Dakota. Or Alaska.

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.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 22nd, 2008 at 06:57:19 AM EST
[ Parent ]
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.

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.
The Fed expands the kinds of collateral MS, GS and Merrill Lynch can post - but in the case of Merrill Lynch, they're becoming part of Bank of America, so that's okay...

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
by Migeru (migeru at eurotrib dot com) on Mon Sep 22nd, 2008 at 07:17:57 AM EST
[ Parent ]
Yeah, Paulson will happily take their most toxic paper as collateral.  Talk about foxes guarding chickens.  Reagan would be proud.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 22nd, 2008 at 10:13:13 AM EST
[ Parent ]
To answer your question, here's from the FT:
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.



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
by Migeru (migeru at eurotrib dot com) on Mon Sep 22nd, 2008 at 05:51:34 AM EST
[ Parent ]
Thanks, Mig.  All I get from FT is a three line teaser or a headache.  I can't afford to subscribe to the entire neo-classical spectrum.  My pocket book and my gag reflex prevent it.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 22nd, 2008 at 10:24:57 AM EST
[ Parent ]
Just google the headline and follow the google news link. Then you can read the whole thing.

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
by Migeru (migeru at eurotrib dot com) on Mon Sep 22nd, 2008 at 10:33:19 AM EST
[ Parent ]
AP via Google: Morgan Stanley to sell 20 pct stake in itself
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.

I'm getting a very uneasy feeling about all this...

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
by Migeru (migeru at eurotrib dot com) on Mon Sep 22nd, 2008 at 11:16:07 AM EST
[ Parent ]
And Migeru's entry in the ET Understatement of the Decade Award is:

I'm getting a very uneasy feeling about all this.

:-)

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Sep 22nd, 2008 at 11:37:18 AM EST
[ Parent ]
That's because I haven't quite digested this yet.

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
by Migeru (migeru at eurotrib dot com) on Mon Sep 22nd, 2008 at 11:43:18 AM EST
[ Parent ]
Gives me indigestion.  If the model is broken, wind them down with the least possible collateral damage instead of putting FDIC, etc on the hook for their excesses.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 22nd, 2008 at 04:28:20 PM EST
[ Parent ]

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