The Federal Reserve decision to allow Morgan Stanley and Goldman Sachs to change their status to bank holding companies now means the Reserve Bank of India (RBI) will have to take a decision on whether the two entities need to apply for banking licences to operate in the country. The two entities do not have such licenses in India.
The move by the Fed to clear the transformation of the two firms has offered their employees in India a breather. Morgan Stanley employees, who were scurrying to find alternative placements following the firm?s shares coming under attack during the turmoil in financial markets last week, are a relieved lot with an official communication on the new status from US headquarters.
RBI sources said the central bank was working on the Indian impact and eventual picture that would emerge. ?The concerned departments are working on the Indian operations for these financial entities, and are figuring out how and when they will come under the purview of RBI. As news of the global picture only came today, our departments are still working on it,? said an RBI official.
An inter-departmental committee within the RBI approves applications for entry and expansion. All banking entities must have at least Rs 300 crore in net worth, capital and free reserves, and a wide investor base with no single player holding more than 10% stake. The cap on the stake that can be held by one bank in another is 5%. The regulator is scheduled to review the policy on investment by foreign banks in Indian private sector banks in 2009.
On the human resources front, the picture is still playing out for these two firms, coming days after revered Wall Street investment bank Lehman Bros went under. Says a headhunter close to investment firms in India, ?There were a few calls from Morgan Stanley employees after it entered into talks with Wachovia Corporation for a possible merger. However, after the global CEO?s address to employees, they were less uneasy.?
Unlike their counterparts in Lehman Bros, Morgan Stanley employees, who have been receiving healthy pay cheques, look forward to continuing in the same company. Moreover, the bonus pay at Morgan Stanley is much higher than other firms.
Lehman staff, on the other hand, are still a confused lot with no official communication yet from the parent company on their status. Worried mid- and junior-level employees are in wait-and-watch mode after reports that Japanese investment bank Nomura Holdings had acquired Lehman?s Asia-Pacific operations on Monday.
Interestingly, Morgan Stanley continues to be an attrac-tive placement proposition. Lehman Brothers has around 2,500 employees, including those in the BPO unit, in India; Morgan Stanley has 500; Goldman Sachs has some 3,000 staff in Bangalore, of which 100 work on investment research. Lehman has 200 employees in its investment banking team.