Thursday, October 30, 2008

Your New Bank: Goldman, Morgan Stanley or GMAC?

If I tell you that tomorrow I intend to become a steel company, will that actually make me a competitor of Posco and Nucor?

Of course not.

When Lloyd Blankfein and John Mack changed their firms from investment banks to Federally-chartered bank holding companies, did that actually make them commercial banks?


And, parenthetically, despite Wednesday's Wall Street Journal piece detailing GMAC's bid for Federal aid via a bank charter, the auto maker's finance arm won't magically become a real bank, either.

In two separate articles that day, the WSJ discussed the prospects for all three firms as commercial banks, rather than their former incarnations.

GMAC, of course, is simply searching for a way to feed at Treasury's bailout trough, as if the direct Federal "loan" to its nearly-dead parent is not sufficient. To suggest the auto loan and mortgage finance company could really function as a full-service bank, and profitably, is ludicrous.

But it does highlight the ingenuity of Americans. When our government ladles out cash, we figure out how to qualify in a flash.

Goldman Sachs and Morgan Stanley have more options, because they aren't really dead yet.

Goldman's Blankfein displayed his chutzpah by offering to merge with Citigroup, if novice CEO Pandit would kindly step aside and let the veteran investment bank's management run things.

Rumors swirled about a Morgan Stanley-Citigroup merger, too, with the alleged common heritage of Citigroup's CEO and the investment bank supposedly greasing the deal.

Truth is, as the WSJ article about them hinted, but failed to describe in detail, merely saying they are now commercial banks does not, by any stretch, make Goldman Sachs and/or Morgan Stanley commercial banks.

Can you imagine a Goldman staffer guiding you through a consumer loan or credit card application? Handling your electronic transfer or opening a safe deposit box for you?

Me neither.

In fact, as the Journal piece suggested, these two late converts can't really be commercial banks in any meaningful, consistently profitable way, so long as they remain as bloated, publicly-owned hedge funds.

Sooner or later, the Fed will force them to shrink or spin off those assets which make them, well, too risky to be a commercial bank in these times. What's left at either company is essentially asset management, some trading and underwriting.

No credit cards. No mortgages. No consumer loans. No transactions processing businesses. No basic commercial loan businesses.

That's why Blankfein and Mack, being smarter than the average real commercial bank CEO, are looking to infect/invade an old-line money center or regional bank much as a virus invades its host.

Rather than buy and bolt on, for example, Capital One, a medium-sized deposit-taking bank, and some out-of-work mortgage, consumer and commercial loan officers, it would be far easier for Goldman to merge with the likes of Citigroup or even PNC. The former, ailing as it is, might accept the marriage as a way to further disguise its true lack of progress on returning to health, while the latter could be vaulted into the ranks of high finance overnight.

Either way, if Goldman and Morgan Stanley don't soon sell themselves to some decent-sized banks, or buy various consumer loan and deposit-taking operations, they will lose their independence as federally-chartered entities the harder way, in forced marriages arranged for them.

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