Goldman Sachs and Morgan Stanley May Buy Up Regional Banks

While Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) will likely remain on the sidelines for now given the challenges associated with valuing potential takeover targets in an environment plagued by credit woes and mark-to-market accounting issues, they may look to buy up regional banks in an effort to jump-start their banking franchises.

A new report from RBC Capital Markets suggests they will consider acquiring regional banks with more stable bases of core deposits now that they have received approval from the Federal Reserve to convert to bank holding companies.

Analyst Jon Arfstrom said:

As these large new players enter the market, deposits are likely to become more difficult to obtain, which could result in rising deposit premiums in acquisitions or higher deposit costs over time if competition rises.

He said the most likely targets are any of the top 25 or 50 deposit franchises in the U.S. and possibly some of the nation’s larger troubled banks or thrifts, which focus on taking deposits and originating home mortgages.

The analyst expects upwards of 300 bank failures throughout the current credit cycle, which should provide plenty of opportunity for Goldman, Morgan and their new group of competitors to bulk up at cheap prices.