Having worked for Goldman (admittedly many years ago, although by all accounts the culture has not changed much) and had Citi as a client, the two firms would not have made for an easy marriage. And it’s a given that the Goldman side would assume, as when commodities giant Phibro acquired Salomon Brothers in the early 1980s, that it would wind up on top no matter what the form of the deal.
The fact that Goldman considered (in effect) selling itself to Citi when Goldman employees would have, a mere month prior, seen taking a job at Citi a big step down professionally it a testament to how desperate conditions were for Goldman and Morgan Stanley before Paulson’s latest round of interventions.
From the Financial Times:
Lloyd Blankfein, Goldman Sachs’ chief executive, called Vikram Pandit, his Citigroup counterpart, last month to discuss a merger, in a dramatic example of the secret manoeuvring that preceded the government bail-out of the financial sector.
The call, which was made at the tentative suggestion of the regulatory authorities or at least with their blessing, was made shortly after Goldman had won surprise approval to convert itself from a securities firm into a commercial bank on September 21, according to several people familiar with the events.
They added that the conversation was brief as Mr Pandit rejected the proposal at once.
A deal would have been structured as a Citi takeover of Goldman. In spite of the slide in Citi’s shares, its market value around the time of Mr Blankfein’s call was $108bn, roughly double Goldman’s capitalisation.
A merger between Citi and Goldman would have resulted in thousands of redundancies in their investment banking units and would have forced out several senior executives. Combining the two companies’ widely different cultures would also have been a challenge….
Goldman executives were not fully convinced of the merits of a deal with Citi but felt there was little downside in placing a call.
The possibility of serious merger talks between Citi and Goldman became a non-starter after this month’s decision by the US Treasury to inject $125bn of capital in the two companies and seven rivals. The move was designed to allay investors’ fears of further failures among large US financial groups.
But Mr Blankfein’s call illustrates the pressure faced by Wall Street groups to consider bold strategic moves before the government bail-out of the sector.
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Insanity. Like one of my senators said, too big to fail is too big to exist, and both banks already met that criteria.
“The possibility of serious merger talks between Citi and Goldman became a non-starter after this month’s decision by the US Treasury to inject $125bn of capital in the two companies and seven rivals.”
In other words, they stopped considering a private deal when the government intervened. Am I wrong?
Don the libertarian Democrat
One whole phone call, huh? Well, it’s nice to know they moved heaven and earth to attempt a private solution before finally opening the Treasury checkbook.
A friend of mine just completed a plane trip frome France to the West Coast, read about financial stuff all the way and came up with the following ditty as his takeaway:
What do you use for a coverup?
A TARP.
Yves,
what is the culture at GS? Just wondering if you can maybe elaborate a little bit, without violating NDAs and naming names. I would be interested to hear from a pro how these guys operate.
I was a client of GS (admittedly many, many years ago) and their ‘raison d’etre’ was there abiity, for a fee, to take on any risk that you didn’t want (prepayment, currency, interest rate, credit).
All you had to do was to trust their balance sheet to make good on their promise.
They would hint vaguely at their power to manage the risk they asumed from you in various markets. You were led to believe that GS actually managed to make money taking on these risks no one else dared touch.
Turns out they were mostly running an enormous, albeit very successful, Ponzi scheme where they relied on new customers to pay off the old.
The new customers stopped in coming circa 2007.
The GS cultists (including our current Tsy Sec) still believe that GS had some secret formula and are vital to the health of the nation. That GS is some great and grand Wizard.
Other than Hank Paulson and the CNBC crew, however, most people are not going to stop paying attention to that little man behind the screen.
When times are tough, parasites start eating other parasites. I guess they call it “consolidation”.
This just reinforces what I thought at the time of the “injection plan”
“That’s at the core of King Tut’s strategy. The cash injection is primarily designed to help GS and MS as they are leveraged the most(ibank balance sheets)”
Anonymous,
I know many people from Wall Street whose friends actually worked for GS or they worked themselves at GS, and they say something else. Plus, you are ignoring the fact that GS predicted and strategized to SHORT MORTGAGE PAPER. Plus you are ignoring the clear insistence that employees of Goldman be aware of keeping the name GS relatively sane. Therefore, I for one will continue to believe that GS is superior to the others.