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Independent Investment Banks Now Extinct

Published 09/22/08 Alexia Cameron - Print Article
E-mail - editor@economyincisis.org

It’s the end of an era. The last big independent investment banks on Wall Street, Goldman Sachs and Morgan Stanley, are now bank holding companies.

Morgan Stanley, one of the New York-based brokerage-firms-turned-bank, signed a letter of intent to sell as much as 20 percent of itself to Mitsubishi UFJ Financial Group, according CNNMoney.com.

MUFG, Japan’s largest bank, will invest up to $8.4 billion for a fifth of Morgan Stanley. Last week Ryosuke Tamakoshi, MUFJ’s chairman, said he would avoid any immediate investments in U.S. banks following .

The news comes following a week in which shares of Morgan Stanley plummeted as low as $12 a share, prior to recovering on the news that the government was preparing a series of moves to sustain failing financial firms.

Sunday night, Morgan Stanley and Goldman Sachs agreed to be regulated by the nation’s top banking regulator, the Federal Reserve. The firms requested the changes themselves. By becoming bank holding companies, both firms are agreeing to uphold tighter regulations and much closer supervision by bank examiners from several government agencies. The overhaul will make the firms look like commercial banks, which means more disclosure, higher capital reserves and less risk-taking.

Gone are the days of Wall Street elite’s lavish perks and seven-figure bonuses. Wall Street is now reverting to its pre-Great Depression ways, before Congress passed a law separating investment banking from commercial banking, known as the Glass-Steagall Act.

Morgan Stanley’s Deal with MUFG may account for the biggest overseas acquisition by a Japanese financial company to date. Morgan Stanley and Goldman Sachs used to be the envy of Wall Street, landing mammoth deals and advising companies and governments around the world. Now they are being swooped up by foreigner’s and babysat by the U.S. government.

Source CNNMoney:

Morgan Stanley (MS) announced that Japan's Mitsubishi UFJ Financial Group Inc. (MTU) has agreed to buy an investment in the company that would eventually reach 20%.

The deal follows the U.S. Federal Reserve's decision late Sunday to convert Morgan Stanley and the other remaining independent broker-dealer, Goldman Sachs Group Inc. (GS), into traditional bank-holding companies.

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