Goldman Sachs: Now a Financial Holding Company

It was just announced that Goldman Sachs (GS) would become a Financial Holding Company ("FHC"), swapping out of its Bank Holding Company ("BHC") status. This is interesting as they stated there was a need to address "administrative issues" and that they had been operating under waivers as a BHC.

The act that allows this is summarized:

The Gramm-Leach-Bliley Act (the GLB Act) became effective on March 11, 2000. The GLB Act authorized affiliations among banks, securities firms, insurance firms, and other financial companies. To further this goal, the GLB Act amended section 4 of the BHC Act to allow a bank holding company (BHC) or foreign bank that qualifies as a financial holding company (FHC) to engage in a broad range of activities that (1) the GLB Act defines as financial in nature or incidental to a financial activity, or (2) the Board, in consultation with the Secretary of the Treasury, determines to be financial in nature or incidental to a financial activity. Furthermore, section 4 of the BHC Act authorizes an FHC to engage in designated financial activities, including insurance and securities underwriting and agency activities, merchant banking, and insurance company portfolio investment activities.

The financial acts:

The Gramm-Leach-Bliley Act (GLB Act) amended the Bank Holding Company Act (BHC Act) to allow a BHC or foreign bank that qualifies as a financial holding company (FHC) to engage in a broad range of activities that the GLB Act defines as ‘‘financial in nature.’’ Section 4(k)(4)(A)–(E) of the BHC Act defines the following activities as financial in nature: 1. lending, exchanging, transferring, investing for others, or safeguarding money or securities 2. insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker for purposes of the foregoing, in any state 3. providing financial, investment, or economic advisory services, including advising an investment company (as defined in section 3 of the Investment Company Act of 1940) 4. issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly 5. underwriting, dealing in, or making a market in securities

Find the whole megilla here.

I would suppose that the BHC status was best for issuing low cost debt and shoring up liquidity via the US Taxpayer ("greatest fool" or "lender of last resort"). Now that the coast is clear and they back to making obscene amounts of money, lets clean up the structure. Perhaps they didn't understand the implications of becoming a BHC (being the backwater folks they are).

Now BoneYard is not a Goldie Conspiracy Theorist, but come on, have you not fleeced the people enough?

Disclosure: Long GS debt and preferreds.

Comments

[DonFurio:]

Who cares, GS navigated correctly through the crises, and so now they no longer need the classification.

To the author, if you're long the debt and preferreds, why are you badmouthing GS? I know you're opinion doesn't matter, but why create and even more bad publicity for GS?

Aug 20 04:15 PM

[Michael Terry:]

Being long does not mean blindly following. Depending on your mandate and its constraints, you can be long for reasons other than being enamored. As well, I am not badmouthing GS, just laying it out there and calling a spade a spade.


On Aug 20 04:15 PM DonFurio wrote:

> Who cares, GS navigated correctly through the crises, and so now
> they no longer need the classification.
>
> To the author, if you're long the debt and preferreds, why are you
> badmouthing GS? I know you're opinion doesn't matter, but why create
> and even more bad publicity for GS?

Aug 20 04:49 PM

[jstratt:]

Good point!

I am not a conspiracy theorist but I connect dots to where they lead. So I ask

Why would Goldman make huge political donations?
Why would Goldman make it a goal to infuse so many leaders into government?
Do you think those connections made a dramatic payoff in the last few years?
Did those connections give Goldman a seat at the table to determine the fate of their competitors?
Did the government allow Goldman to profit from a period of crisis?
Did Goldman tell the government when and how it wanted its money back?
Was a Goldman Sachs created computerized trading system adopted on Wall Street?
Did such a system allow Goldman Sachs to profit by seeing the information of other traders before they transacted their trades?
If you make a trade and it is shared to another person who can profit from your trade to reduce your profit would you consider that a theft?
If you develop code to take advantage of others trading information ahead of time and it is stolen and considered dangerous to free market system in the wrong hands would you ask yourself whose hands should have it?

Perhaps Goldman is being unfairly criticized. On the other hand if you look at wealth in the US it is the rarest of rare to find an individual investor who has made any money. By the way I have done well but when I study wealth data I am astonished at the rapid reduction of wealth in all but a very few.

We live in a time where it may take a high level of sophistication to excel in stock market investing. When it is due to smart investing methods that is great. When it begins to look like some players have special advantages that is a different story.

Many people would like to think that stock markets where they have invested to be able to retire are run in a fair and even handed manner.

Aug 20 11:23 PM

[Warm_Paw:]

The irony is that Goldman is ripping itself off.
Notice share volume as of late.
Everything's tanking, we're in a world financial crisis, unemployment's rising, homes are foreclosing and the market keeps climbing.
Defying logic means someone's manipulating something.
Investor's aren't about to lay it out when the rug can get pulled at any time. But investors used to invest, now they have to gamble. Wall St. has become Vegas.If it wasn't for the Fed, Wall Street would have learned it's lesson by now. The taxpayer has to pay for the greed of the wealthy and saddle their children with the debt.
Money ain't coming back in.
Goldman may boost the markets but they're using their own money to make the imaginary profit.
Not much of a profit when that happens.

Aug 21 12:27 AM

[Warm_Paw:]

After this strike date - going to be some major downside.
Half way to March's bottom. Only no money left for the next stimulus.
We're flogging a dead horse!

Aug 21 12:30 AM