Will Goldman and Morgan Stanley be next?

16 September 2008

2 minute read

Will Goldman and Morgan Stanley be next?

The brokerage model is deeply flawed. The best that Morgan Stanley and Goldman can hope for is a shutgun wedding with a big pocketed universal banking rival, and we're all doomed.

Nouriel Roubini, blogger, Professor of Economics and professional pessimist, thinks that where Lehman and Bear Stearns have gone, Goldman and Morgan Stanley will soon follow.

Roubini's reasoning is that broker-dealers are just as susceptible to a run on the bank as Northern Rock & Co., and they don't have any retail or commercial deposits to back them up. "The biggest problem is that they borrow in middle markets literally overnight, are leveraged 20 or 30 times, and lend very long term," he declared during an interview on CNBC.

John Gapper, over at the FT seems to be of the same opinion.

"It seems to me that Goldman and Morgan Stanley have two options. One is to follow Merrill and sell out to a large commercial bank with a big capital and deposit base....The second is to scale back heavily, or abandon, their broker-dealer arms and become more like big hedge funds or private equity funds."

Equally downbeat is Christpher Walen of Institutional Risk Analytics, who thinks that if Goldman and Morgan Stanley try to carry on alone, they'll be shorted to death by hedge funds.

Do you dare disagree? We invite you to do so below.

AUTHOReFinancialCareers UK

Insider Comment

Sa
Sarah, Editor, eFinancialcaree
17 September 2008
From KBW analysts on Morgan Stanley - 'Looking through this credit crisis, MS has a top-tier institutional business that has certainly felt the weight of this crisis, but its core underlying client franchise and top tier positioning in businesses like prime brokerage, have remained solid and in our view will be the beneficiaries of the problems at smaller and unfortunately weaker competitors that has become painfully evident over the past 6 months...Generally speaking, there is market share up for grabs and we believe MS is front and center and will capture their fair share and then some.'
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No
Not a greedy hedge fund
17 September 2008
The question should be why aren't those greedy hedge funds regulated! They are the ones causing most of the anarchy in the markets because they can get away with it and milk the gains...
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Ex
Ex MS
17 September 2008
On the one hand, I do subscribe to the view that GS and MS are and always were in a league of their own vs. other investment banks. The only edge you have in this business is the best people - and it starts from day one in the job. If you had the option out of university to join a number of investment banks, anybody in their right mind who had several offers including one from one of the two above would chose that over any other bank (show me the LSE graduate who would pick DB over MS...). So already from day one they get first pick, and consequently the highest quality people. On the other hand, this slight superiority (with a strong emphasis on slight - dont think anybody would claim Lehman, ML etc. are/very manned by stupid people, they have done very well in many areas), seems to have been an asset that has been leveraged to max effect for PR purposes to quite frankly blow this superiority of the two institutions completely out of proportion. I find the whole "The Smartest Guys In The Room who never fails" notion around GS which some naive souls seem to believe in very blue-eyed. Remember the last company that had managed to create this image of itselt was called Enron
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JJ
JJ
17 September 2008
Am looking at Morgan Stanley Q3 press release and it does not look encouraging. Yes, they have beaten analysts' expectations but $1.4bln of their earnings comes from marking to market their own long terms debt to reflect deteriorating credit spreads. I don't call it real money (at least, our bankers do not get IC on these revenues). You remove "accounting P&L" and you are left with very average results.
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An
Anon
17 September 2008
The day Goldman goes down is the day the financial system collapses
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