Alert September 23, 2008

FRB Approves Morgan Stanley, Goldman Sachs Applications to Become BHCs

The Federal Reserve Board approved (the “Morgan Approval”) the application of Morgan Stanley (“Morgan”) and two of its subsidiaries to become bank holding companies (“BHCs”) upon the conversion of Morgan’s Utah industrial loan company subsidiary, MS Bank to a national bank.  MS Bank has FDIC-issued deposits.  The FRB also approved Morgan’s request to retain its voting shares of a federal savings association and a limited purpose national bank that engages solely in trust or fiduciary activities.

In a second order (the “Goldman Approval”) released at the same time as the Morgan Approval, the FRB approved the application of The Goldman Sachs Group, Inc. (“Goldman”) and one of its subsidiaries to become BHCs upon the conversion of Goldman’s Utah, FDIC-insured, industrial loan company subsidiary, Goldman Sachs Bank USA (“Goldman Bank”), to a state-chartered bank.

In both the Morgan Approval and the Goldman Approval, the FRB determined that because of recent turmoil in the financial markets “emergency conditions exist that justify expeditious action” on the Morgan and Goldman applications.  Because neither application involved the acquisition, merger or consolidation of a bank, no five-day antitrust waiting period prior to consummation of either transaction was required.

Morgan filed and Goldman expects promptly to file an election with the FRB to become a financial holding company.  Both Morgan and Goldman, under the Bank Holding Company Act (the “BHC Act”), will have two years to conform their nonbanking investments and activities to the requirements of Section 4 of the BHC Act, with the possibility of three one-year extensions.

Morgan and Goldman are the last two major independent investment banks that are not BHCs.  Upon completion of the transactions, as BHCs, Morgan and Goldman will be subject to FRB oversight, but will gain increased access to FRB funding and will have increased opportunities to expand their base of stable deposits through acquisitions or otherwise.