Monday, September 22, 2008

Goldman Sachs and Morgan Stanley are now ordinary banks

The Federal Reserve said it has approved, pending a statutory five-day antitrust waiting period, the applications from Goldman Sachs (GS $128) and Morgan Stanley (MS $30) to become bank holding companies. Goldman said its decision was "accelerated by market sentiment" but provides it with access to permanent liquidity and funding. Morgan Stanley said the move offers the marketplace certainty about the strength of its financial position and its access to funding.

By scrapping their current structures, the two investment banks will be able to gather deposits and reduce their reliance on short-term funding markets. During the transition, the Fed said it will extend funding to broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley. With over $150 billion in assets, GS Bank USA will be one of the ten largest banks in the US. Goldman Sachs is trading lower.

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