Last of Investment Banks to Become Bank Holding Companies

September 22, 2008 No Comments »


It’s the end of an era on Wall Street.

Late Sunday, the Federal Reserve Board approved applications to allow Goldman Sachs and Morgan Stanley to convert to bank holding companies.

Under supervision by the Federal Reserve, the pair will be afforded a number of benefits, including FDIC deposit insurance and access to the Federal Reserve Bank Discount Window.

At the same time, the new structure will see the companies held to more stringent regulations, like new capital requirements that could limit their actions.

Goldman Sachs Bank USA will become the fourth largest bank holding company, with more than $150 billion in assets.

Morgan Stanley said it had more than three million retails accounts and $36 billion in bank deposits as of August 31, and plans to expand its retail banking services as part of the move.

In related news, Mitsubishi UFJ Financial Group Inc. has also announced that it will buy a 10-20 percent stake in Morgan Stanley at an undisclosed price.

It’s been a rough year for investment banks that made bad bets investing in high-risk mortgage-backed securities.

In just the last week, Lehman Brothers went bankrupt and Merrill Lynch agreed to be bought out by Bank of America.

And back in March, Bear Stearns agreed to a buyout at the hands of Chase, who got the once high-flying investment bank on the cheap.

Shares of Morgan Stanley were up $2.78, or 10.23%, to $29.99, while Goldman Sachs was up $1.20, or 0.92%, to $131 in midday trading on Wall Street.

(photo: matzeott)

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