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How should we take this? Probably like Moszkowski himself, with appropriate caveats, which Reuters drops in at the end of its story: "On the whole, we would not ascribe a very high probability of Goldman acquiring a bank of any particularly large size," he writes. Indeed, the consideration Goldman gave to the issue was probably a function of sensible due diligence, particularly given enhanced supervisory oversight from the Federal Reserve, the sheer anxiety that gripped the markets between the Bear Stearns Cos. run in March and the fears over Lehman Brothers Inc., Fannie Mae and Freddie Mac and perhaps the knowledge that banks sitting on hefty deposit bases were getting knocked down to almost nothing. The one darker fear can probably be dismissed: That Goldman's condition in those fearful months was not as robust as everyone thought. On the other hand, if Moszkowski is right, then Goldman should be applauded: It recognized how quickly a market could turn on any leveraged firm and that it had the resources to build defenses if necessary. What would happen in the event of a big trading loss, a trading scandal or some other unforeseen disaster in these panicy markets? Goldman worked through the scenarios, though this is hardly evidence that the firm is doing a, God forbid, Citigroup Inc. Still, if Goldman did move to buy a big bank it would be a radical defensive move. Reuters offered a formidable list of roadblocks, from the hit it would take from impaired bank assets to the possibility that regulators might demand the firm get out of some risky businesses, like commodities. I woud add to the list: A big bank would generate horrendous cultural problems -- particularly at a firm like Goldman with an aggressively, finely honed market culture -- dramatically tighter margins and add a business, retail banking, it has no particularly feel for (and an historic aversion against). The retail emphasis might be the dealbreaker. It's not hard to see Goldman buying a predominately institutional commercial bank, say a Deutsche Bank AG, a State Street Corp. or the old J.P. Morgan & Co. But it is hard to imagine Goldman giving out toasters to score some retail deposits. As for buying a small, commercial bank: why? Such a bank would only bring down more federal regulation without the compensatory deposit cushion in the event of disaster. And would Goldman "build it up"? How? By going on an acquisition spree and giving regulators the right to recommend changes in Goldman's risk profile every time it made a deal? And if that was the plan, how long would it take to grow to a size that was meaningful? Maybe Goldman was thinking ahead to the next great systemic crisis, but I doubt it. Even it's not that omniscient. - Robert Teitelman CategoriesComments
From: montechristo,
goldman needs to do what it does best. jumping into rough seas to save dead swimmers is inadvisable.
Posted on:
July 30, 2008 12:03 AM
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Is Goldman, Sachs & Co. ready to morph into a bank? Who knows, but that is a possibility raised by Merrill Lynch & Co.'s Guy Moszkowski in a Monday research report. Moszkowski argues that Merrill discussed whether it should buy a deposit-taking institution -- and we're talking a big one -- in order to buttress its own liquidity needs in difficult markets. Reuters, which reported Merrill's report Monday, went on to speculate that perhaps Goldman would be interested in large, troubled commercial banks that it's been "linked to," like National City Corp. or Wachovia Corp. The links? Goldman advised the two (and former Goldmanite Robert Steel is now running Wachovia), which, given that Goldman advises about half of corporate America, is very tenuous evidence of anything. 
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I think, it will be a great move. They should even look into Washington Mutual (MU).
They can have a cross country branch network and a platform of Thrift.