After receiving a green light from the government to repay its borrowed TARP money, Goldman Sachs Group Inc. (NYSE:GS) might seek to shed its commercial bank holding company status and once again become a pure investment bank, according to Reuters. Although the move is plausible, some believe it would be too controversial at this time and the New York bank will likely keep its commercial banking status for now.
Lawrence White, a professor at New York University's Stern School of Business, told Reuters: "It would be such a high-profile and probably adverse public event that I'm not sure Goldman or Morgan Stanley wants to do it as a direct frontal assault." White suggests that another viable scenario for Goldman or Morgan might be just spinning off its investment banking unit.
The credit crisis turned Wall Street upside down, forcing traditional white shoe investment banks such as Goldman Sachs and Morgan Stanley (NYSE:MS) to convert to commercial bank holding companies to access the Fed's lending window while Merrill Lynch & Co. Inc. and Bear Stearns Cos. Inc. were gobbled up by stronger institutions. All of which was triggered when Lehman Brothers Holdings Inc. fell into bankruptcy.
Life as a commercial bank has been less lucrative for Goldman, with stringent capital requirements "dampening its ability to use borrowed money to boost profits for its lucrative proprietary trading business," according to Reuters. An economy mired in a recession doesn't help either. But one thing's for sure: Goldman's conversion to a commercial bank may have saved it from ruin when a pure investment banking model couldn't. - Gerald Magpily
Continue reading below
