Commercial banks win war with Wall Street
Wake up and good morning. Investment banks? We don't need no stinking investment banks. In a move that culturally would have once been as absurd as the Boston Red Sox suddenly donning Yankee uniforms and singing "I Love New York," the Federal Reserve took the extraordinary step on Sunday night of agreeing to convert investment banks Morgan Stanley and Goldman Sachs into traditional bank holding companies. Why? To try and prevent the crisis on Wall Street from infecting its two premier (and last) major institutions. And probably to also show the stock market before today's opening bell that the feds were doing something besides beginning the inevitable bickering between the Treasury Department and Congress on how to fashion the $700-billion bailout bill.
This Federal Reserve action does a couple of things. It buys more time for the government to get its act together with an overall strategy. It distracts the stock markets, forcing them to digest the structural change to Morgan and Goldman. It requires Morgan and Goldman to now act like bank holding companies, which means lowering their risk profiles and becoming subject to direct review of the Federal Reserve. It also means that a Morgan merger with Wachovia is "off the table," says CNBC.
Here's Morgan Stanley's take on it (through gritted teeth, I'm sure): Says John J. Mack, Morgan chairman and CEO: “This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position – with the stability and flexibility to seize opportunities in the rapidly changing financial marketplace." And here's Goldman's spin (it becomes the nation's fourth largest bank holding company): “We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources,” said chairman and CEO Lloyd C. Blankfein. Oh my, oh my, what large portions of humble pie to start the week.
But not all is lost for top Wall Streeters. Top executives at Lehman Brothers' New York office, who were at the helm during history's largest corporate bankruptcy, have been guaranteed the lion's share of a $2.5-billion bonus pot. Lehman had "walled off" the fund, telling buyer Barclays Capital that it couldn't use the money for anything but severance payments or bonuses. And who was the "real" winner in the garage sale of Wall Street firms last week, Bank of America (which is buying Merrill Lynch in its entirety) or Barclay's (which is cherry-picking the best pieces of bankrupt Lehman)? "There's no question that Barclays gets the better deal," said Lutz-based Dick Bove, brokerage industry analyst at Ladenburg Thalmann.
Finally I was struck by two stories this weekend about two men who took very different paths while each had questionable business backgrounds and consummate salesman's skills. Susan Taylor Martin, writing in the St. Petersburg Times, profiled U.S. Rep. Vern Buchanan, a millionaire from Sarasota who's once again in a campaign for his seat against Sarasota former banker Christine Jennings. Wrote Martin about Buchanan: " 'The guy was an absolutely incredible marketer and salesman,' says Thomas Budzynski, a Detroit lawyer who handled one of the many lawsuits against Buchanan. 'Could he sell himself to the people and get elected? Of course he could.' "
And then there is the Orlando Sentinel story about the suicide of Winter Park developer Steve Walsh, a sales charmer and businessman who had twice gone bankrupt and twice fought his way back. And once again, note the reference to a charismatic personality. "Within a radius of about 10 to 12 feet, he was one of the most convincing people I'd ever met," said Charlotte, N.C., attorney Charles S. Daly. "If he could get within 12 feet of you, he could borrow money."
-- Robert Trigaux, Times Business Columnist