Goldman Sachs and Morgan Stanley abandon investment bank status

| September 22, 2008 | 0 Comments

The remaining two independent investment banks on Wall Street, Goldman Sachs and Morgan Stanley, have changed status and have received regulatory approval to convert themselves into traditional bank holding companies.

The surprise declaration was announced by the Federal Reserve at 2.30am London time today and follows an historic week on Wall Street after last week’s collapse of banking giant, Lehman Brothers, and the rescue of US insurer AIG.

Furthermore, Bank of America acquired Merrill Lynch in a deal worth $50 billion (£28 billion), while in the UK, Lloyds TSB acquired HBOS.

Shares in Goldman Sachs and Morgan Stanley plummeted last week after the collapse of Lehman led to investors fearing that other financial institutions would suffer the same fate.

Merger speculation has been surrounding the two banks after reports that Morgan Stanley was holding merger discussions with Wachovia, while Goldman Sachs was believed to be in talks with China Investment Corporation.

However, the new status will allow Morgan Stanley and Goldman Sachs to go on an acquisition trail and rival larger firms like Citigroup, Bank of America and JPMorgan Chase.

The new status will also mean that Goldman Sachs will become the fourth largest US bank holding company, while Morgan Stanley said it will ’provide the firm maximum flexibility and stability to pursue new business opportunities as the financial marketplace undergoes rapid and profound changes‘.

Goldman Sachs already has two deposit-taking subsidiaries with some $20 billion in deposits while Morgan Stanley has some $36 billion in bank deposits.

The conversion of Goldman Sachs and Morgan Stanley marks the end of the New York investment bank.

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