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

tjdavis posted blog posts
1 hour ago
Doc Vega posted photos
10 hours ago
tjdavis posted a blog post
yesterday
Doc Vega commented on Doc Vega's blog post Is this proof that the story about Charlie Kirk's assassination is false?
"Les prone, Thanks Buddy! "
yesterday
Doc Vega posted a blog post
yesterday
tjdavis posted a photo
Tuesday
Doc Vega commented on Doc Vega's blog post Is this proof that the story about Charlie Kirk's assassination is false?
"Less Prone as usual the official version of the truth does not match the evidence and is labeled…"
Saturday
Less Prone commented on Doc Vega's blog post This Memorable Anthem Given by Nick Freitas Hit the Nail on the Head Please Listen!
"Charlie Kirk was getting very critical against Israel and had turned down a lucrative deal from the…"
Saturday
Doc Vega's blog post was featured

The Army of Government Launched Psychopaths

They walk among us in most college towns. They seem relatively reasonable until political…See More
Saturday
Less Prone favorited Doc Vega's blog post Is this proof that the story about Charlie Kirk's assassination is false?
Saturday
Less Prone commented on Doc Vega's blog post Is this proof that the story about Charlie Kirk's assassination is false?
"Have to sign in to YT for this. So. What I do is to go to https://ytdown.io/en/ and download…"
Saturday
Doc Vega commented on Doc Vega's blog post Was a Planned Civil War Averted?
"cheeki kea, you are spot on. The old guard is about to collapse! "
Oct 2
Doc Vega commented on Doc Vega's blog post Alligator Creek and a Japanese Massacre
"cheeki kea, the Japanese thought they could expand their empire and exact enough damage on the US…"
Oct 2
Michelle Reichert favorited Burbia's video
Oct 1
cheeki kea posted a video

NEW DOCUMENTARY - Dissent Into Madness

TRANSCRIPT AND SOURCES: https://www.corbettreport.com/dissent-into-madness/What if the delusions of the dissidents are in fact real? What if their paranoid f...
Oct 1
cheeki kea commented on Doc Vega's blog post Alligator Creek and a Japanese Massacre
"Japan served themselves up no favours by inching out into the South Pacific as they soon found out.…"
Oct 1
cheeki kea commented on Doc Vega's blog post Was a Planned Civil War Averted?
"Their plans did not work out because we are the news now, and the old news is the enemy. "
Oct 1
Doc Vega posted a blog post

Alligator Creek and a Japanese Massacre

The year is 1942 just a few months after the Pearl Harbor disaster. Despite losses suffered by the…See More
Sep 30
Doc Vega commented on Burbia's video
Thumbnail

CHARLIE KIRK WAS CNP! JOSH REEVES 9-11-25

"With all due respect this guy comes off as a drunken asshole and he didn't even  know who…"
Sep 29
Doc Vega posted a blog post

Was a Planned Civil War Averted?

We are living in sadly historic times where good and evil are in battle all the time. Not that this…See More
Sep 28

© 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