CNBC reported last week that either Lloyd Blankfein (Goldman CEO) and John Mack (Morgan Stanley CEO) have become close muckers all of a sudden, or they are cooking up a deal of some kind (on the basis that there's just not enough room for two former pure investment banks anymore). The news agency has learned that the two executives have been having dinner 'regularly' since Lehman Brothers went belly-up in September, prompting speculation that they talking merger. Here is The City thinks it's more likely, however, that they have simply been talking about the 'good old days', when they both managed profitable businesses with large market caps, and got paid huge bonuses just for showing up for work.
In the meantime, analysts expect both Goldman and Morgan Stanley to have had 'ugly' quarters in the fourth period (both firms closed their fiscal-fourth quarter at the end of November). Goldman is now expected to post its first quarterly loss since going public in 1999, while Morgan Stanley is also thought likely to writedown over $2bn and post another quarter of negative earnings.
What is interesting, however, is how these two once-mighty titans are going to respond to the new market realities. Goldman, it appears, will try to very much carry on as usual (MarketWatch quotes Blankfein, who last month said: 'Nothing that happened this year alters the core of what Goldman Sachs is. We won't stop doing the things that made us a leading investment bank'). Morgan Stanley, on the other hand, has applied for a national banking licence and is likely to build a retail brand to complement its traditional activities, while cutting back on risk, principal investing and prop trading.
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