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Old Wall Street model is dead and buried

The restructure of Goldman Sachs and Morgan Stanley is a sure sign that the traditional Wall Street investment model is dead.

One senior investment banker says: “The market has told investment firms that the independent investment model is dead so get another one.”

He says the changeover from investment firms to commercial deposit-taking banks signals a significant shift in direction for both firms.

As part of its push into deposit-taking, Morgan Stanley has entered into a strategic allegiance with Mitsubishi UFJ Financial Group, which will see Japan’s largest banking group gain a 20% stake in Morgan Stanley and a seat on the US firm’s board of directors.

Restructuring to gain access to funding could be echoed by British institutions, particularly broker-facing lenders currently frozen out of the Bank of England’s Special Liquidity Scheme.

But Peter Williams, executive director of the Intermediary Mortgage Lenders Association, says this may prove difficult for lenders in the UK.

He says: “As seen in the US, adapting in structure is one option to get liquidity. But I’m not sure how easy it would be in the UK.

“The BoE should help non-deposit takers by letting them access the SLS. Why is the playing field so tilted given all lenders are approved and regulated?”

Goldman Sachs is also shoring up its capital reserves in the wake of it achieving bank holding company status.

Last week it was revealed that the investment firm had the fi-nancial backing of renowned in-vestor Warren Buffet to the tune of $5bn (2.7bn).

Buffet, ranked by Forbes as the richest person in the world in February, is to buy $5bn of preferred stock from Goldman Sachs via his firm Berkshire Hathaway.

Goldman Sachs is taking no chances with the stability of its fi-nancial position. It was seeking $2.5bn from public investors but got $5bn.

Buffett, chairman and chief executive of Berkshire Hathaway, says: “Goldman Sachs is an exceptional institution. It has an unrivalled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”


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