Bove: Morgan, Goldman Move Won't Change Existing Activities

The decision of Morgan Stanley and Goldman Sachsto become bank-holding companies will not mean any change in their investment banking and trading operations, according to a top industry analyst

Richard Bove, financial institutions analyst at Ladenburg Thalmann & Co., says the two Wall Street firms “have already been banks for a long time,” citing their moves into mortgage lending and other activities associated with commercial banking.

Financial Fallout

Morgan and Goldman late Sunday asked the Federal Reserve to change their status, a stunning development following the government’s plan to implement a $700 billion rescue package for financial institutions crippled by the credit crunch.

The new status means tighter regulation, principally in the form of capital requirements, but also allows the companies to seek traditional commercial deposits from consumers.

Bove says the transition will be easy because the firms “have been brokering core deposits for decades for others. Now they’re going to keep them.”

He also ruled out any immediate moves by the firms to takeover existing banking industry players, saying he did not Goldman and Morgan becoming “big commercial banks.”


Bove said the move to bank holding company was reflects market markets, which are “forcing the deleveraging of the banks.

He says Congress will look toward the commercial bank model when it rewrites existing regulations because core deposits are “the reason commercials banks “did not crater.”

Under current law, commercial banks can be in the investment banking business, but they have to be stand-alone subsidiaries. Other firewall protections limit the amount of money they can lend to the subsidiary. 

Companies In This Story

Bank of America, which is acquiring Merrill Lynch, and JPMorgan Chase, which is absorbing Bear Stearns, both had investment banking and brokerage businesses before those deals.

Until the change in status request, Morgan Stanley was actively seeking a merger partner in commercial banking. Goldman was also reportedly considering such a move.