gee, i thought we were hours from financial armageddon if the bailout doesn't get rammed through....uncle warren sees VALUE in GS and GS see value in indymac
financialweek.com
Goldman may target IndyMac to build out its branch network
By Tim Catts
September 23, 2008
Goldman Sachs may target the assets of failed banks such as IndyMac Bank as it transforms from the biggest investment bank on Wall Street into the fourth-largest bank holding company in the United States.
“We plan to build our banking business organically and by buying retail deposits and bank assets in the wholesale market, not through opening branches,” a Goldman Sachs spokesman said. “For example, the FDIC is selling IndyMac assets and those might be the sort of thing we’d be interested in looking at.”
Fifteen banks with total deposits of roughly $30 billion have failed since the beginning of 2007, according to data from the Federal Deposit Insurance Corp. With more than $19 billion in deposits, IndyMac was by far the largest. The FDIC took control of the thrift after regulators shut it down in July.
With 117 more banks holding $78 billion in assets on the FDIC’s list of “problem institutions,” Goldman could have plenty of additional opportunities to snap up deposits in the months ahead.
When a bank nears failure, the FDIC typically approaches potential buyers who have told the agency they would be interested in buying the assets of troubled institutions, said spokesman David Barr. Most of the coordination of the sale, including bidding by potential buyers, takes place before the bank goes under, typically on a Friday at the close of business. After state or federal regulators shutter the bank, it enters receivership and the FDIC transfers its assets to the buyer.
IndyMac is different because the FDIC acts as the thrift’s conservator, keeping it running with an eye to selling its assets. Part of the mission of IndyMac Federal Bank, as the government-run company is known, is to “maximize the value of the institution for a future sale,” according to an FDIC statement.
One of the benefits of buying bank deposits from the FDIC—instead of merging with or acquiring an operational bank—is that the regulator sells “clean” assets, Mr. Barr said. When two banks merge, or when a bank buys another bank, it’s usually saddled with the target’s liabilities and debts, not to mention potentially toxic mortgage-related securities or other real estate investments that could be sitting on the balance sheet.
“It’s a fairly good deal for the assuming bank, because not only do they get an instant bank, with branches and employees and deposit customers, but it’s a clean bank,” Mr. Barr said. “The receivership is like a filtering process. All the troubles and headaches that caused the bank to fail are left behind with the FDIC in receivership, so the acquiring bank gets clean assets.”
Goldman Sachs and Morgan Stanley, the last of Wall Street’s bulge-bracket firms, announced Sunday that they would convert from investment banks regulated by the Securities and Exchange Commission to bank holding companies regulated by the Federal Reserve.
The move transforms the firms, bringing increased regulatory oversight and tighter controls on leverage. But if they bulk up on deposits, as both firms said they would do, it could provide a more stable supply of capital. That could calm investors and counterparties worried about the firms’ ability to stay afloat.
“We understand that the market views oversight by the Federal Reserve and the ability to source insured bank deposits as providing a greater degree of safety and soundness,” Goldman Sachs said in a statement on Sunday.
Morgan Stanley said it “will pursue initiatives to expand the retail banking services it offers its retail clients and build a stable base of core deposits” in a statement released Sunday announcing its transformation into a bank holding company.
“We’re going to look at all options,” a Morgan Stanley spokesman said. One possibility: Tap the network of 500 brokerage locations, he said. But he declined to give specifics of the firm’s plans. “We’re going to look at all things, including acquiring deposit-based institutions.” |
