Despite its imminent legal restructuring from an investment bank to a bank holding company, Goldman Sachs has confirmed that the firm’s structured products business will not be affected. “We don’t see any impact [on our structured products business],” Goldman Sachs’ spokesman Michael DuVally said.On Sunday 21 September, both Goldman Sachs and Morgan Stanley, the last remaining independent US investment banks, announced they would convert their business structures such that each would become a bank holding company subject to the regulations of the US Federal Reserve Board. As such, both firms can tap into the Federal Reserve’s liquidity lending pool as necessary and create their own commercial banking businesses. But unlike investment banks, both will be held to stricter banking regulations which prohibit the firms from unrestrained levels of leverage.
Goldman officials said the plan is to move assets from other businesses into its two existing commercial banks, one in the US and one in Europe, and then grow them organically and through acquisitions. Together Goldman’s banks currently hold assets of $20bn.
“…our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and funding,” Goldman’s chairman and CEO Lloyd Blankfein said in making the announcement.
Once converted, Goldman Sachs will become the fourth largest US bank holding company. Goldman was founded as a partnership in 1869 and had its initial public offering in 1999. As of 30 June, the top three US bank holding companies were Citigroup, JPMorgan Chase, and Bank of America, respectively.
Separately, Morgan Stanley announced that it will similarly be morphing into a bank holding company, will expand its retail banking services and will build a stable base of core deposits. It also announced a deal to sell up to a 20% equity stake in the firm to Mitsubishi UFJ Financial Group, Japan’s largest banking group and the world’s second largest bank holding company. Mitsubishi has $1.1tr in bank deposits. The partnering would allow each bank to expand its global financial service footprint, Morgan Stanley officials said.
A Morgan Stanley spokesperson had not returned a call seeking comment on the future of its US structured products business at the time of going to press.
Morgan Stanley has issued or intends to issue 238 retail structured products so far this year, with 13 separate issues set to price this week, including three reverse convertible securities. By contrast, Goldman Sachs’ structured products business tends to issue fewer retail structured products with considerably larger sales volumes. So far this year, Goldman has issued 93 retail structured products with an additional 15-year interest rate yield curve note, set to price this week.
