The Federal Reserve late Sunday approved the requests of Goldman Sachs Group Inc. and Morgan Stanley to switch to bank holding companies from investment banks.
“We understand that the market views oversight by the Federal Reserve and the ability to source insured bank deposits as providing greater degree of safety and soundness,” according to a statement by Goldman Sachs, whose shares have dropped 55% over the past year. It added that the move will turn Wall Street’s largest firm into “the fourth-largest bank holding company.”
Investment banks are currently regulated by the SEC, which has been criticized for lax oversight.
Goldman said it already has $20 billion in deposits through its Goldman Sachs USA and Goldman Sachs Bank Europe PLC banking subsidiaries and that it intends “to grow our deposit base through acquisitions and organically.”
In a statement, Morgan Stanley said it “will convert its Utah industrial bank to a national bank,” already has “$36 billion in bank deposits,” and will “expand the retail banking services it offers its retail clients.”
“I don’t think the disappearance of the highly leveraged investment bank model is such a tragedy because that model had already died,” said senior market strategist Milton Ezrati of Lord Abbett in a telephone interview, referring to the increased difficulty for investment banks to borrow the capital required by their highly leveraged business model.
Separately, the SEC authorized U.S. exchanges to add 90 more names to last week’s list of 799 financial companies whose shares cannot be sold short until Oct. 2. The new non-shortable stocks include General Motors Corp. and General Electric Co., which have financial units, and well as insurer Hartford Financial Services Group and asset manager Legg Mason Inc.
Other countries are following the example of U.S. and U.K. regulators who decided late last week to temporarily stop authorizing selling shares of a financial stock that the market participant does not own.
