(Adds NEW YORK dateline; details from Merrill note; Goldman
response; Adds background)
By Joseph A. Giannone
NEW YORK, July 28 Wall Street giant Goldman
Sachs Group Inc (GS.N) has considered buying a deposit-taking
bank, a move that would help it fund its businesses during
times of market turmoil, Merrill Lynch analyst Guy Moszkowski
wrote on Monday.
The credit crunch has prompted analysts and investors to
speculate that Goldman, eager to establish a new and more
stable source of funds, would snap up a bank. The market talk
has gained strength in recent weeks as rising loan losses and
worries about the U.S. economy has made bank stocks cheap.
Moszkowski, one of the most influential analysts following
the banking industry, adds to the growing speculation that
Goldman, which has largely avoided the credit losses hobbling
its rivals, is looking to acquire a bank.
"We still would not ascribe very high probability, but if a
bank with excess deposits were available at the right price,
with no need for Goldman to exit existing businesses, we'd no
longer rule it out," Moszkowski wrote in a client note after
meeting with four senior Goldman executives last week. "These
are strange times indeed."
Goldman spokesman Ed Canaday declined to comment.
Moszkowski, who met with Chief Financial Officer David
Viniar, said the firm has been "obsessed" with liquidity as it
watched how cash flow fears brought down Bear Stearns and now
threatens Lehman Brothers LEH.N.
Viniar "noted that the firm had done extensive analysis on
the degree to which it might be able to deploy excess deposits
to fund core businesses," Moszkowski said. "Based on the
willingness to even consider a transaction, it would seem
Goldman has satisfied itself that core activities could
conceivably be funded this way."
Goldman, for example, has been linked to National City Corp
NCC.N and Wachovia Corp WB.N, both of which it has served
as a financial adviser.
Goldman has clearly considered such a transaction, he
wrote, though such a deal is not very likely right now.
Goldman has long been reluctant to enter mass-market
businesses, steering clear of mutual funds and retail
brokerage, for example, amid worries about potential risks to
Accounting rules, meanwhile, would make it expensive for
Goldman to acquire a bank whose assets must then be marked down
to reflect slumping market conditions.
Another roadblock would be if regulators balked at letting
Goldman keep certain volatile businesses, such as commodities
trading, while also holding consumer deposits. Regulators
looked past this issue when it approved JPMorgan Chase & Co's
(JPM.N) purchase of Bear Stearns and its energy unit, he said.
Analysts and investors in recent weeks have suggested
Goldman could pursue its usual strategy of buying something
small and building it up.
That means investors should not count on Goldman to snap up
one of the larger U.S. banks currently struggling through
mortgage and other losses.
"On the whole, we would not ascribe a very high probability
to Goldman acquiring a bank of any particularly large size.
He has a "buy" rating and a price target of $212 on the
stock, which currently trades at $178.06 a share.
(Additional reporting by Neha Singh in Bangalore; Editing by