Goldman move for former head of NY Fed

Gerald Corrigan, a former head of the Federal Reserve Bank of New York, is being tapped by Goldman Sachs as chairman of its newly created bank holding company.

Goldman and rival Morgan Stanley are transforming themselves into commercial banks, a move encouraged by the US government after Lehman Brothers’ collapse.

Goldman made a step in that direction last week when the New York Banking Department announced that it had given approval to the formation of Goldman Sachs Bank USA, which consists of its Utah industrial loan company and various other capital-intensive units such as its loan and mortgage arms.

Mr Corrigan’s appointment, expected to be announced soon, comes as speculation mounts over Goldman’s strategic direction in its new incarnation – including whether it will buy another bank to build its deposits more quickly.

The firm is expected to post a loss for the quarter that ended last week as a result of the recent rout in the markets.

In tapping the formidable Mr Corrigan as chairman, Goldman is reaching out to a man that many consider among the best presidents the New York Fed has had.

During his tenure, Mr Corrigan was an activist figure who had no trouble telling heads of big banks to come up with swift action plans to improve balance sheets in the 1990 downturn.

Former colleagues recall how he summoned Citibank executives and ordered them to eliminate dividend payments that year.

Since joining Goldman in 1994, Mr Corrigan, 71, has been active in several initiatives meant to reduce systemic risk, particularly in the over-the-counter credit default swap market.

In a speech in March, Mr Corrigan said: “I have long maintained that our collective capacity to anticipate the specific timing and triggers of systemic financial shocks is virtually nil.”

He went on to warn of the complexity of many classes of financial instruments, adding that many contain hidden leverage at a time when most financial market participants were not nearly sensitive enough to the issue.

● Goldman Sachs faces a fourth-quarter loss of up to $2.2bn, its first quarterly loss as a listed company, analysts said on Tuesday.

In a spate of reports after the official close of Goldman’s fiscal 2008, several analysts said they expected losses of as much as $5.50 per share for the quarter, based on the dismal state of global stock markets and Goldman’s overall exposure to declining prices across a variety of asset classes.

While Goldman is expected to post a gain for the full year, the quarterly loss would be its first since going public in 1999. The loss, and its magnitude, would puncture the mystique that had grown up around the firm a year ago, when a brilliant hedging strategy helped the bank to avoid the huge subprime mortgage-related losses that hobbled its primary ­competitors.