Bank of New York Mellon, State Street and Northern Trust are all likely acquisition candidates for Goldman Sachs and Morgan Stanley as the two former investment banks begin operating under commercial bank charters, Larry Tabb, esteemed securities industry analyst said in a teleconference today.
With Wall St. investment banks largely eroded we will see emerging more hybrid institutions, part commercial banks part securities firms, suggested Tabb, founder and chief executive of the New York-based research and consulting firm, Tabb Group. Therefore, as former investment banks become commercial banks, they are likely to look to buy banks that already have securities' units, Tabb explained.
Noting that Goldman Sachs and Morgan Stanley became commercial banks partly "as a play for deposits," Tabb said, "Goldman and Morgan, we're expecting them to probably buy a depositary institution. What makes a lot more sense is to see them buy a custodian institution—maybe a Bank of New York Mellon [New York] State Street [Corp., Boston] or Northern Trust [Co., Chicago]." Along the way Tabb mentioned JP Morgan Chase, but corrected himself saying, "They're probably too expensive."
The charter change was "absolutely a play for deposits," Tabb said, adding, "DDA accounts don't pay interest and savings accounts don't pay much interest, that's the cheapest source of funds you can get." He contrasted it with "paying interest to institutional investors.
"In terms of a less risky business model, if you take in free money and loan it out even at 4.5 percent, you're making 450 basis points."