Wednesday, July 30, 2008

Then and now: 1971 and 2008


Popular Music: Brown Sugar (Rolling Stones), I feel the Earth Move & Its Too Late (Carole King), Joy to the World (Three Dog Night), Just My Imagination (The Temptations), Me and Bobby McGee (Janis Joplin), One Bad Apple (The Osmonds).

Best Movie: The French Connection
Best Actor: Gene Hackman
Best Actress: Jane Fonda (Klute)

Dow Jones: 890.2
Gallon of gas: 44c
Gallon of Milk: 1.32
Average Income: 9111.00

On my birthday (today and my first as a US Citizen), I got a interesting letter from Smith Barney highlighting the things that were happening in the year of my birth. I have always had a special fondness and affection for Janis Joplin (especially the song Me and Bobby McGee) and actor Gene Hackman.

Goldman to buy Retail Bank? Yes / No

Goldman `Highly Unlikely' to Buy Retail Bank, Whitney Says
By Christine Harper

July 30 (Bloomberg) -- Goldman Sachs Group Inc., the largest and most profitable U.S. securities firm, is ``highly unlikely'' to acquire a retail banking operation, Oppenheimer & Co. analyst Meredith Whitney said in a note to investors.

``While much speculation has been made about Goldman's interest in acquiring a retail bank, we believe the chances are less than slim,'' she wrote after a meeting yesterday with Goldman executives. ``Management stated frankly that it was highly unlikely given the current regulation.''

Whitney's note comes just days after Merrill Lynch & Co. analyst Guy Moszkowski told investors they shouldn't ``rule out'' a bank acquisition by Goldman. While Moszkowski said a transaction seemed unlikely if it forced the firm to exit businesses such as commodities, he noted JPMorgan Chase & Co., the biggest U.S. bank by market value, was allowed to keep commodity business it gained in acquiring Bear Stearns Cos.

Merrill's sale of collateralized debt obligations this week for $6.7 billion, or 22 percent of face value, may give Goldman an opportunity to buy similar assets, Whitney added in her note today. She met yesterday with Goldman Chief Financial Officer David Viniar, Co-President Jon Winkelried and Investment Banking Chief David Solomon.

``Last year, Goldman raised a several-billion dollar fund to buy distressed mortgage assets, yet to date has put little to use,'' Whitney wrote. After the sale by Merrill, ``it is likely in our opinion that more portfolios are put on the market.''

Goldman's executives said the current market creates ``strong headwinds to earnings growth,'' Whitney wrote. The company has cut the bottom 10 percent of its employees instead of the usual bottom 5 percent, she wrote.

Whitney rates Goldman shares ``perform.''

Goldman Willing to Consider Buying a Bank, Merrill Analyst Says
By Christine Harper

July 28 (Bloomberg) -- Goldman Sachs Group Inc. may buy a bank to gain deposits to fund itself, although a deal won't happen if regulators force Goldman to exit a business such as commodities, Merrill Lynch & Co. wrote in a research report.

``Don't rule out a bank acquisition,'' Merrill Lynch analyst Guy Moszkowski wrote in a note to investors today after meeting Goldman executives including Chief Financial Officer David Viniar and Co-President Jon Winkelried.

Goldman, the biggest and most profitable of the U.S. securities firms, has ``done extensive analysis'' on the potential for funding its divisions with excess deposits from a bank, Moszkowski wrote, citing Viniar. Regulations that prevent bank holding companies from owning assets such as pipelines and power plants may present a hurdle, although JPMorgan Chase & Co. seems to have won approval from regulators, Moszkowski said.

Goldman management ``made it clear that such a deal was unlikely to be pursued if it meant that other traditional, attractive GS businesses could not be continued. Commodities being the obvious example that comes to mind,'' Moszkowski wrote. ``However, regulators appear to have OK'd JPM's participation in physical commodities via its acquisition of Bear Stearns.''

The biggest earnings opportunity that Goldman managers see is in buying and trading mortgages, the note added. Goldman hasn't yet raised a fund to invest in distressed mortgages and doesn't think all the assets have been marked down sufficiently yet, the note said.

``The gulf between what potential distressed-mortgage buyers are willing to pay, and where holders have marked the assets, remains too wide,'' Moszkowski wrote.

A ``private-market solution'' to the mortgage market turmoil is more likely than a government-sponsored type solution such as Resolution Trust Co. in the 1980s, Moszkowski wrote.

``Whenever this happens, GS will be ready to bid on significant portfolios, and when the scale of a package exceeds GS's comfort level, it expects to be able to round up co- investors quickly,'' he wrote.