Goldman Could Shed ’Commercial Bank’ Charter

Goldman Could Shed ’Commercial Bank’ Charter
Freed from the grip of the U.S. Treasury’s bailout program, Goldman Sachs Group might seek to shed its commercial bank holding company status and reclaim its role as Wall Street’s iconic investment bank, some investors believe.
By Reuters
More from this author
June 11, 2009


* Rescinding would loosen regulation, trading constraints

* '08 charter change signaled safety to investors

* Goldman says not interested in changing status

NEW YORK - Freed from the grip of the U.S. Treasury's bailout program, Goldman Sachs Group Inc might seek to shed its commercial bank holding company status and reclaim its role as Wall Street's iconic investment bank, some investors believe.

Now that the worst of the crisis has passed and as financial markets are showing signs of healing, Goldman could look to reverse a hastily planned move that it is reported to have viewed as a necessity at the height of the financial crisis.

"If I were the CEO, it would be one of the top things on my game plan to set up a time to do it," said Marshall Front, chairman at Chicago-based Front Barnett Associates, which does not own Goldman stock. "That would remove a layer of the regulation."

Goldman Sachs spokesman Lucas von Praag denied that the company has any intention of shedding its bank holding company status, assumed in the aftermath of the market tsunami that followed the collapse of Lehman Brothers and American International Group Inc in September.

Both Goldman and Morgan Stanley accepted commercial bank status, and the increased regulation that entailed, after seeing their shares spiral lower amid concern about their viability and in return for access to Fed lending facilities.

The move eased investor fears but effectively killed off both firms' investment banking model, decades in the works. The Fed became their primary regulator, replacing the U.S. Securities and Exchange Commission.

REGULATORY YOKE

Both faced significantly tighter regulations and much closer supervision by bank examiners from several government agencies.

While Morgan Stanley has moved closer to becoming a traditional bank through moves like a joint venture with Citigroup's Smith Barney wealth management unit, Goldman has mostly stayed an investment bank in all but name.

That's why it could be tempting for it to embrace that strategy and throw off the regulatory yoke, especially after the announcement earlier this week that it is among 10 major banks allowed to repay its loans from the Treasury's Troubled Asset Relief Program, known as TARP.

"They are repaying TARP -- that's one hook out of them," Front said. "If they are trying to end the bank holding company adventure, that's another."

With the worst of the financial crisis seemingly over, the benefits of being a bank holding company are outweighed by the restrictions and conditions, said Tom Sowanick, the chief investment officer of Princeton, New Jersey-based Clearbrook Financial LLC.

Since Goldman became a commercial bank, industry watchers have said the change would expose the firm to stringent capital requirements, dampening its ability to use borrowed money to boost profits for its lucrative proprietary trading business.

In other words, the huge profits to which Goldman had grown accustomed could be a thing of the past.

"Goldman will try to give up its bank license in order to gain leverage in trading activity," said Sowanick, whose firm has $22 billion in assets. Sowanick's firm does own financial stocks, including Goldman.

There is little recent precedent for banks changing their charter from banking holding company, although giant mortgage lender Countrywide Financial Corp made such a move in March 2007, when it changed its charter from a bank holding company to a federal thrift.

'FRONTAL ASSAULT'

Within a year, Countrywide, which was eventually taken over by Bank of America Corp , crumbled under the weight of bad loans amid the mortgage and home lending crisis. Goldman's is a very different business and would not end up under the same regulator as Countrywide.

Goldman and Morgan Stanley received expedited approval to become bank holding companies as some of their longtime competitors, particularly Lehman Brothers, collapsed or disappeared.

In testimony before Congress, Lehman head Richard Fuld said his firm would have been helped if it had been allowed to become a bank holding company.

Goldman and Morgan Stanley's move to Fed regulation told investors they were safe, said Lawrence White, a professor at New York University's Stern School of Business.

"In the more calm environment of today as compared with last September, presumably they have less need to reassure the markets that they are in a safe environment," White said.

Still, White doesn't expect such a brash move as dropping a commercial bank charter now.

"It would be such a high-profile and probably adverse public event that I'm not sure Goldman or Morgan Stanley wants to do it as a direct frontal assault," White said.

White instead envisions a scenario in which one of the two spins off its investment banking unit, "which reconstitutes itself as the old investment bank with higher levels of risk and less oversight." (Additional reporting by Jennifer Ablan, editing by Gerald E. McCormick)


By: Steve Eder

Views: 28

Comment

You need to be a member of 12160 Social Network to add comments!

Join 12160 Social Network

"Destroying the New World Order"

TOP CONTENT THIS WEEK

THANK YOU FOR SUPPORTING THE SITE!

mobile page

12160.info/m

12160 Administrators

 

Latest Activity

omegamann is now a member of 12160 Social Network
3 hours ago
Doc Vega commented on Doc Vega's blog post Three Must See Movies for Halloween
"cheeki kea Thanks. I watched most of the movie but I'd forgotten until a few minutes into it…"
7 hours ago
cheeki kea commented on Doc Vega's blog post Three Must See Movies for Halloween
"That's a fine movie menu you've got Doc V. I love the old days theme. Great to view when…"
13 hours ago
Doc Vega posted a blog post

Three Must See Movies for Halloween

Grab Your Popcorn and Settle In!  If you really want to get in the mood for Halloween and you like…See More
yesterday
Bob of the Family Renner posted photos
yesterday
Doc Vega posted a blog post

Terror on All Hallows Eve

Chapter IElizabeth was angry. All of her friends were going to be out on Halloween, but her. She…See More
Monday
Jeff favorited Jeff's profile
Monday
Jeff favorited Jeff's profile
Monday
Jeff favorited Doc Vega's profile
Monday
Jeff is now a member of 12160 Social Network
Sunday
Doc Vega posted blog posts
Friday
tjdavis posted a video

How Corporations Are Secretly Poisoning Our Food Supply

Dupont and 3M have been secretly poisoning America for decades. PFAs — also known as forever chemicals—are now in our food, water, clothes, and our blood. Th...
Friday
Doc Vega posted a blog post

They Won’t Stop

 The demonically driven left will not stop. Makes no difference how much violence they call for or…See More
Oct 22
Doc Vega posted a blog post

What US Scientist unwittingly helped the Nazis devise the V-2 Missile?

  In the early 1920’s and leading up to World War II German technology outpaces the peace time…See More
Oct 20
tjdavis favorited Sandy's video
Oct 19
tjdavis posted a photo
Oct 19
Christopher Walker is now a member of 12160 Social Network
Oct 19
tjdavis posted videos
Oct 19
Burbia commented on tjdavis's photo
Thumbnail

Reflection

"Let's see if this goes past indictment."
Oct 18
Doc Vega commented on Doc Vega's blog post Something Watches From Out there in the Wilderness
"cheeki kea That's very interesting history. So many things about history that go ignored or…"
Oct 18

© 2025   Created by truth.   Powered by

Badges  |  Report an Issue  |  Terms of Service

content and site copyright 12160.info 2007-2019 - all rights reserved. unless otherwise noted