NB. Investment banks help companies and governments raise money by issuing and selling securities in the capital markets (both equity and bond), as well as providing advice on transactions such as mergers and acquisitions. Until the late 1980s, the United States and Canada maintained a separation between investment banking and commercial banks. A majority of investment banks offer strategic advisory services for mergers, acquisitions, divestiture or other financial services for clients, such as the trading of derivatives, fixed income, foreign exchange, commodity, and equity securities. Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is referred to as the "sell side." Dealing with the pension funds, mutual funds, hedge funds, and the investing public who consume the products and services of the sell- side in order to maximize their return on investment constitutes the "buy side". Many firms have buy and sell side components. The largest bulge bracket firms (by market capitalization) on Wall Street are Goldman Sachs and Morgan Stanley (however, both banks elected to convert to traditional banking institutions on the 22nd of September, 2008, as part of a response to the US financial crisis.[1]) Citigroup, Credit Suisse, Deutsche Bank, HSBC, JP Morgan Chase, and UBS AG are "universal banks" rather than bulge-bracket investment banks, since they also accept deposits (though not all of them have U.S. branches.)
On Sep 23, 8:06 am, Frank <[EMAIL PROTECTED]> wrote: > Goldman, Morgan Stanley Bring Down Curtain on an Era > By Christine Harper and Craig Torres > Sept. 22 (Bloomberg) -- The Wall Street that shaped the financial > world for two decades ended last night, when Goldman Sachs Group Inc. > and Morgan Stanley concluded there is no future in remaining > investment banks now that investors have determined the model is > broken. > The Federal Reserve's approval of their bid to become banks ends the > ascendancy of the securities firms, 75 years after Congress separated > them from deposit-taking lenders, and caps weeks of chaos that sent > Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed > sale of Merrill Lynch & Co. to Bank of America Corp. > ``The decision marks the end of Wall Street as we have known it,'' > said William Isaac, a former chairman of the Federal Deposit Insurance > Corp. ``It's too bad.'' > Goldman, whose alumni include Henry Paulson, the Treasury secretary > presiding over a $700 billion bank bailout, and Morgan Stanley, a > product of the 1933 Glass-Steagall Act that cleaved investment and > commercial banks, insisted they didn't need to change course, even as > their shares plunged and their borrowing costs soared last week. > By then, it was too late. As financial markets gyrated -- the Dow > Jones Industrial Average whipsawed 1,000 points in the week's last two > days -- and clients defected, executives at the two firms concluded > they had no choice. The Federal Reserve Board met at 9 p.m. yesterday > and considered applications delivered that day, said Michelle Smith, a > spokeswoman for the central bank. The decision was unanimous, she > said. > `Blood in Water' > ``There's blood in the water in the industry and the sharks are > circling,'' Peter Kovalski, who helps oversee about $10 billion at > Alpine Woods Capital Investors LLC, said at the end of last week. ``It > all comes down to perception and the current trust within the > community.'' > Morgan Stanley fell 12 cents to $27.09 in New York Stock Exchange > composite trading, while Goldman dropped $9.02, or 7 percent, to > $120.78. > Wall Street hasn't had such a shakeup since the 1980s, when firms > including Morgan Stanley and Bear Stearns Cos. went public and > London's financial markets were altered forever with the so- called > Big Bang reforms implemented in 1986. Bear Stearns disappeared in > March, when it was bought by JPMorgan Chase & Co. > The announcement paves the way for the two New York-based firms, both > of which will now be regulated by the Fed, to build their deposit > base, potentially through acquisitions. That will allow them to rely > more heavily on deposits from retail customers instead of using money > borrowed in the bond market -- the leverage that led to the undoing of > Bear Stearns and Lehman. > Depositors Rule > Morgan Stanley has taken $15.7 billion of writedowns and losses on > mortgage-related securities and other types of loans since the credit > crunch started last year. Goldman's tally stands at about $4.9 > billion. While both companies have remained profitable and avoided > money-losing quarters suffered by Lehman and Merrill Lynch, their > revenue from sales and trading and investment banking has been > declining this year. > ``Deposit-banking is king right now,'' said David Hendler, an analyst > at CreditSights Inc. in New York. ``It's the only meaningful critical- > mass way to make money.'' > Mitsubishi UFJ Financial Group Inc., Japan's largest bank, said today > it will pay up to 900 billion yen ($8.4 billion) for as much as a > fifth of Morgan Stanley. The deal would mark the biggest overseas > acquisition by a Japanese financial company, according to data > compiled by Bloomberg. > Building Deposit Base > The Japanese bank will become ``a valuable partner as we transition to > a bank holding company and build our bank services and deposit base,'' > Morgan Stanley Chief Executive Officer John Mack said in a statement > today. > The deal announced today came after Morgan Stanley held talks last > week to pursue a merger with Wachovia Corp. That deal became less > likely now that Morgan Stanley is becoming a bank holding company, > said Tony Plath, a finance professor at the University of North > Carolina at Charlotte. > Goldman Sachs may raise capital to acquire assets ``if we see assets > that are attractive,'' Lucas van Praag, a spokesman for Goldman in New > York, said today. The firm has ``no immediate plans to raise > capital,'' he said, declining to comment on how much or when it might > raise money. > Morgan Stanley, the second-biggest securities firm until this week, > had $36 billion of deposits and 3 million retail accounts at the end > of August. The company won approval from the Office of the Comptroller > of the Currency today to convert its Utah-based industrial bank into a > national banking association to be called Morgan Stanley Bank, > National Association. > Citigroup, JPMorgan > ``This new bank holding structure will ensure that Morgan Stanley is > in the strongest possible position,'' Chairman and CEO Mack, 63, said > in a statement last night. ``It also offers the marketplace certainty > about the strength of our financial position and our access to > funding.'' > Goldman, the largest and most profitable of the U.S. securities firms, > will become the fourth-largest bank holding company. The firm already > has more than $20 billion in customer deposits in two subsidiaries and > is creating a new one, GS Bank USA, that will have more than $150 > billion of assets, making it one of the 10 largest banks in the U.S., > the firm said in a statement last night. The firm will increase its > deposit base ``through acquisitions and organically,'' Goldman said. > ``Goldman Sachs, under Federal Reserve supervision, will be regarded > as an even more secure institution with an exceptionally clean balance > sheet and a greater diversity of funding sources,'' Lloyd Blankfein, > 54, Goldman's chairman and CEO, said in the statement. > Regulation > The Washington-based Fed is the primary regulator of bank- holding > companies, which are firms that own or control banks. Citigroup Inc., > Bank of America Corp. and JPMorgan are bank- holding companies > regulated by the Fed. Goldman and Morgan Stanley will be able to > become bank holding companies immediately, without submitting to a > five-day antitrust waiting period, the Fed said today, after > consulting with the Department of Justice. > As bank holding companies, Goldman and Morgan Stanley will no longer > be required to mark all of their assets to the current market values. > Assets held in the bank divisions of the firms don't have to be valued > at market rates, potentially allowing the companies to allow further > writedowns on the value of their holdings. > ``We are moving assets from a number of strategic businesses, > including our lending businesses, into GS Bank USA,'' Goldman said in > its statement yesterday. > Securities firms, by contrast, had been regulated by the Securities > and Exchange Commission. The SEC's future becomes dimmer with the > change in Goldman and Morgan Stanley's structures. > Less Risky > ``You can't kiss goodbye to the last two important investment banks > without noting that the house is empty,'' said David Becker, a former > SEC general counsel who is now a partner at Cleary Gottlieb Steen & > Hamilton in Washington. ``It's a downward spiral where the less > significant the population you regulate, the less your available > resources.'' > The change may lead to less risk-taking by the companies and possibly > lower pay for their employees. Both Goldman and Morgan Stanley held > more than $20 of assets for every $1 of shareholder equity, making > them dependent on market funding to operate. > Goldman, in particular, has been remarkable for the high bonuses it > pays to its employees. Goldman's CEO and two co- presidents were each > paid more than $67 million last year. > ``They're going to have to protect their deposit bases by law, and the > days of high leverage are gone,'' said Charles Geisst, a finance > professor at Manhattan College in Riverdale, New York, who wrote > ``Wall Street: A History.'' ``The days of the big bonuses are gone.'' > To contact the reporter on this story: Christine Harper in New York at > [EMAIL PROTECTED] --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
