Has a Run on Goldman and Morgan Begun?
By
Alex Dumortier, CFA
September 17, 2008
|
On Saturday, NYU economics professor Nouriel Roubini wrote that a run on Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) would follow the collapse of Lehman Brothers (NYSE: LEH). Normally, I wouldn't pay too much attention to what one academic says. Unfortunately, Roubini has demonstrated time and again that he was one of the few observers who understood the magnitude of this crisis from very early on.
In truth, the conditions on which Roubini predicated his dire forecast were not fully met. Nonetheless, in a sign of how serious the current crisis has become, the market appears to be frog-marching Goldman and Morgan Stanley toward a similar fate as that of Merrill Lynch (NYSE: MER), which was pushed into the arms of Bank of America (NYSE: BAC) this weekend.
On the heels of American International Group's (NYSE: AIG) nationalization, Goldman shares have lost nearly a quarter of their value today, while Morgan Stanley's stock has fallen by nearly one-third. Those drops show a loss of confidence in the investment banks' prospects, which could contribute to the sort of run on the bank we witnessed at Lehman last week.
Morgan pricks up its ears
Morgan Stanley appears to be listening intently to the market's message. CEO John Mack is reportedly weighing whether to remain independent or merge with a well-capitalized commercial bank. He surely wants to avoid the ignominious fate Lehman suffered as a result of its blinkered management.
(After failing to find a buyer this weekend, Lehman has begun bankruptcy proceedings, although its U.S. broker-dealer subsidiary will be acquired by U.K. bank Barclays (NYSE: BCS)).
The end of the modern investment bank?
Yesterday, I wrote that Goldman and Morgan Stanley wouldn't suffer the same crisis of confidence that toppled Lehman and Merrill. In this market, things change with frightening speed. It looks like I may have been wrong, while Roubini may have been right. We could very well be witnessing the death throes of the modern U.S. investment bank.
Further credit-crunching Foolishness:
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