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Next Big Market Mover: Goldman Sachs to Buy Major Bank

Posted by billspaced | 3:39 PM | , , , , | 0 comments »

I work in the banking industry; I'm naturally skittish right about now (and have been for over a year now), darn it!

Today, my "out-of-left-field" thinking led me to the idea that a major bank (let's call it WaMu) would merge with Goldman Sachs. This quote from GS' CFO cements the deal for me (which I read after my epiphany and to which I've added my emphasis):

Chief Financial Officer David Viniar appeared to strongly rebuff the market’s growing sentiment that the fabled Wall Street firm should find a traditional bank with whom it can merge. “Most assets we have couldn’t be funded by deposits” at a traditional bank, Viniar said on a conference call with analysts to discuss Goldman’s third-quarter earnings. In the last six months, two struggling Wall Street investment banks have been acquired by large commercial banks - including yesterday’s purchase of Merrill Lynch & Co. (MER) by Bank of America Corp. (BAC) - and a chorus of analysts and investors have speculated that Goldman will enter a similar merger. Traditional banks typically enjoy more stable businesses, as well as the ability to borrow money inexpensively from depositors. As a result, these commercial banks have become natural merger partners for struggling investment banks, whose businesses are typically more volatile in nature, and much more vulnerable to negative market sentiment as well as the need to borrow capital at expensive terms.
So here's the deal: Goldman will do the opposite of what's been done recently: Rather than a retail bank buying an investment bank, the hunter becomes the hunted and the investment bank buys the retail bank.

Bank of America just became the biggest investment bank in the country with this deal:
Overnight, the deal will make Bank of America the county’s largest player in wealth management. It already runs the biggest branch banking network and it is the biggest issuer of small business, home equity and credit card loans. The Countrywide deal made it the nation’s biggest mortgage lender, too.
Goldman cannot afford to let BofA get bigger. Goldman had to say what they said today. Their stock had already taken a bath based on the horrible earnings announced today. They have to wait for several days before they can do anything because their deal will most definitely be a stock deal. First, they have to wait until their stock rises a few dollars per share. Then, they do a deal. Now, of course, I have no inside information and haven't bought anything, but I think a deal is imminent. It's a matter of who buys whom. The "if" is no longer a question.

This is a time of unprecedented consolidation.
Mark my words.

Either that, or Schwab buys WaMu. Either one works and broadens the market coverage of the dealmakers.

Money isn't everything. Enjoy life. Spend time with your family.

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