Fed's Policy of Low Rates Benefits Goldman and JP Morgan Chase

Goldman Sachs (NYSE: GS), JP Morgan Chase (NYSE: JPM) and Morgan Stanley (NYSE: MS) Benefit from Zero-Interest-Rate Policies

Although all banks have benefit from the Federal Reserve’s zero-interest-rate policy, some banks have benefited much more than others, with Goldman Sachs (NYSE: GS), JP Morgan Chase (NYSE: JPM) and Morgan Stanley (NYSE: MS) near the top.

Goldman Sachs is benefiting particularly well as a result of the zero-interest-rate environment because of the extremely low interest rate that it is paying on its long-term borrowings. It was released on Wednesday that Goldman Sachs’ long-term borrowing rate was a miniscule 0.92% during the third quarter, which is down from 3.53% during the third quarter of 2008. The $203 billion of debt is Goldman Sachs’ largest single funding source, so as its cost of borrowing plunges, its bottom line benefits as long as it buys solid assets and its trades pay off.

JP Morgan Chase and Morgan Stanley have also benefited, but Goldman Sachs definitely has an advantage over both firms. JP Morgan Chase currently has a long-term debt rate of 2.09%, but JP Morgan is funding a largely different set of assets from Goldman Sachs. Morgan Stanley, which some would argue is a better comparison, but it hasn’t released its third quarter numbers yet. During the second quarter, Morgan Stanley’s long-term debt rate was 3.2% while Goldman Sachs’ rate was 1.26% during the second quarter.

http://www.americanbankingnews.com/2009/11/04/goldman-sachs-...