July 30, 2008 / 1:24 PM / 11 years ago

UPDATE 2-Goldman sees bank buy unlikely, analyst Whitney says

(Adds analyst comments, background, byline; updates share price)

By Tenzin Pema

BANGALORE, July 30 (Reuters) - Goldman Sachs Group Inc (GS.N) management was quoted by analyst Meredith Whitney as saying that the largest U.S. securities firm was “highly unlikely” to buy a retail bank given current regulation, and that current market environment posed strong headwinds to earnings growth.

“While much speculation has been made about Goldman’s interest in acquiring a retail bank, we believe the chances are less than slim,” the Oppenheimer & Co analyst wrote in a note to clients.

On Tuesday, analyst Whitney met with Goldman’s Chief Financial Officer David Viniar, Co-President Jon Winkelried, and Head of Investment Banking David Solomon.

“Management stated that the company would only be interested in purchasing a bank if it was able to use the acquired deposits as a funding source for any other part of the business and without additional regulatory scrutiny,” Whitney said.

“Obviously, current regulation makes that scenario impossible,” she added.

Goldman did not immediately return a call seeking comment.

The credit crunch has prompted analysts and investors to speculate that Goldman, eager to establish a new and more stable source of funds, would snap up a bank.

The market talk has gained strength in recent weeks as rising loan losses and worries about the U.S. economy has made bank stocks cheap.

Earlier this week, Merrill Lynch analyst Guy Moszkowski, who had also met with CFO Viniar, said Goldman had considered buying a deposit-taking bank, but added that such a deal was not very likely now.

“CFO Viniar did caveat that clearly if the regulatory pendulum swung to an extreme so as to force broker dealers to convert into a bank holding structure... then GS would be interested in acquiring bank deposits,” Whitney said.

Viniar expects additional regulation for broker-dealers, including greater U.S. Federal Reserve oversight, more disclosure requirements and higher capital requirements, Whitney said.

Viniar, however, does not expect broker-dealers to be subject to full bank regulations, she added.


Goldman, which has largely avoided the credit losses hobbling its rivals, acknowledged that the current environment of low levels of activity and lack of confidence in the markets posed strong headwinds to earnings growth, Whitney said.

“Management believes these headwinds will continue to persist if not accentuate,” she added.

Goldman also expects material reduction in investment banking headcount by year-end, Whitney said.

The company, however, has positioned itself with healthy liquidity and “dry powder” to take advantage of attractive opportunities and potential share buybacks, she said.

Whitney rates the stock “perform.” Shares of Goldman were up 1 percent at $183.47 in morning trade on the New York Stock Exchange. (Editing by Jarshad Kakkrakandy)

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