The Brooklyn Investor

The Brooklyn Investor

OK, so I asked in my last post if GS would be better off as part of a bigger lender and I couldn’t put that thought away. Before there were rumored merger companions like Wachovia (that was just through the turmoil, though), AIG, and HSBC (plus some others; WFC might have been mentioned during the problems).

But WFC held coming to mind. Both WFC and GS are owned by Buffett and he enjoys both of them. Of all First, this is merely for fun. I know this is a long shot and in this political/regulatory/public sentiment environment, this is typically not going to occur (if GS can be an octopus, what can you call WFC-GS?!).

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But this is a blog so I can write whatever I want, so that’s what I’ll do. Also, it’s a little silly to respond a great deal to short-term styles. I did say the indie investment banking institutions are doing horribly in comparison to ones that are part of bigger banks. Morgan Stanley just announced their 2Q and it just confirms this.

The difference is quite clear. MS’s result is horrible. I don’t know. The results are horrible, though. What’s stunning about MS is that it’s horrible across the panel. I haven’t been pursuing MS too closely but I am a little amazed that shareholders have been so patient there. Again, take a look at JPM’s returns and which includes the best whale loss! How does MS not make money? OK, so MS may be horribly mismanaged but the fact that the usually very well-managed GS is not doing too well either may imply investment banks may actually be better off inside other banking institutions.

This is just something that involves mind just by looking at the facts (even though admittedly, the reality is very short-term and may not be indicative of long-term ‘facts’). So this idea leads me to the Wells Fargo-Goldman Sachs merger idea. OK, so none of these really click so let’s move on.

As JPM, BAC and WFC develop domestically as the biggest banking institutions, contending in major metropolitan centers like NYC significantly, it’s interesting to notice that both JPM and BAC have large investment banks. C, which I haven’t included here also offers a huge investment bank. WFC stands out as not having a sizable investment bank though they do have a wealth management/brokerage segment even.

So, for the reason that sense, WFC-GS might make sense. Of course, just because everyone else has something is no good reason to get one for yourself. But nonetheless, let’s keep looking at this. So look at that! 7 billion in their asset-management business). It fits so well, it seems almost unavoidable!

From this point of view, it looks completely normal and realistic. OK, so this is a large deal. I briefly thought about BRK just buying GS outright but recognized that there would be some regulatory issues (don’t ask me what; I have no idea exactly, but it would oftimes be complicated). 47.6 billion of GS is a bit much for even Buffett to swallow now (but you never know!).