Goldman Sachs & Morgan Stanley, Banks Yet Still Not Banks (GS, MS, C, TD, BKUNA)

Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) have so far not lived up to the notion of being “bank holding companies.”  These companies have not just been poor acquirers of banks, because for all practical purposes they have been no acquirers of banks.  The companies made the jump from investment banking and brokerage firms to “bank holding companies” last year, perhaps not by choice but by necessity.  The problem is that Goldman Sachs and Morgan Stanley are still acting like brokerage firm and investment banking firms rather than as banks.

Where was the last banking branch you saw with the Goldman Sachs or Morgan Stanley name on the front door that looked like a bank with people in line, safety deposit boxes, tellers, and such?  You haven’t.  The switch to a “bank holding company” was one of several moves in the forced and needed de-leveraging of Wall Street during the financial meltdown.  It also allowed for a more easy funding of TARP monies on the government’s behalf when it came to baling out the banks and bailing out Wall Street without the appearance of Uncle Sam turning on a printing press down in lower Manhattan.

So far we have seen Morgan Stanley do a deal with Citigroup, Inc. (NYSE: C) for the brokerage operations in what started as a venture that most believe will be a smaller Citi and a larger Morgan Stanley in the brokerage world.  But that is not exactly a move into real banking.

The New York Post reported over the long weekend that Goldman Sachs came up short in its bid with Toronto-Dominion Bank (NYSE: TD) for the assets of failed BankUnited (NASDAQ: BKUNA) in Florida.  It also noted that Goldman Sachs came up short in its IndyMac bid.  The New York Post noted that the BankUnited bid was short of the Wilbur Ross and Carlyle private equity bid.

What seems obvious is that if Goldman Sachs and Morgan Stanley really want to go buy up a physical presence banking operation, then these buys will only be on the cheap.  Neither firm seems interested in getting into an expensive bank with multiple and endless problems.  It seems as though buying banks out of FDIC receivership is not working out for these investment banking behemoths, but as things continue to stabilize and as things keep getting “less-bad” in the financial markets it seems logical that buying failed institutions will only get more expensive.  As time goes on, the price of poker goes up.

At what point will the FDIC, the Treasury, the SEC, and others ask these “bank holding companies” where their banks are that they can inspect?  For now those regulators may just have to monitor what goes on at these firms’ trading desk operations.

JON C. OGG
May 26, 2009