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Goldman & Schwab?


BusinessWeek Investor -- Inside Wall Street

Goldman & Schwab?

Top brass at tony Goldman and retail shop Schwab have had informal merger talks

Is No. 1 investment bank Goldman Sachs (GS) aiming to buy the premier discount broker Charles Schwab (SCH)? "It would be a deal made in heaven," says one investment strategist who has close ties with both companies.

For sure, he says, Goldman Sachs would be more than elated to get its hands on Schwab, one of the largest financial-service companies with more than $1 trillion in customer assets in more than 7.3 million accounts. And if there is a firm that Chairman Charles Schwab would be willing to deal with, it's Goldman, this strategist says.

So it isn't surprising that the top brass at both companies have held off-and-on informal talks in recent months on the idea of a merger of equals, says one investment banker. The discussions, he says, haven't yet produced "definitive results, and no deal may be imminent." But neither side has closed the door to a merger. Both sides are aware, he says, that the strategic fit is "close to ideal" in today's markets.

The key, of course, is Charles Schwab himself. "Chuck, who owns 22% of Schwab, has yet to fully embrace the idea of a merger with Goldman," says an insider. If he does, a deal would be within sight, he adds. Goldman still must integrate market maker Spear, Leeds & Kellogg, which it recently bought for $6.5 billion. And Schwab is still digesting U.S. Trust, acquired early this year.

But there are plenty of strategic reasons for Goldman and Schwab to combine, says money manager David Post of Harris Bretall Sullivan & Smith. Goldman needs to woo retail customers in a big way, he says. Its IPO deals are targeted to institutions, "but it makes sense for Goldman to have a pool of retail customers--and Schwab customers' $1 trillion assets--to further expand its franchise," says Post. Goldman's global reach will help Schwab abroad. One analyst figures Schwab, trading at 32, is worth 60 a share, or $82 billion, in a buyout. Goldman is trading at 119 a share. Goldman and Schwab declined comment.By Gene G. Marcial


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