Goldman, Morgan Stanley Bring Down Curtain on an Era (Christine Harper, Craig Torres)

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Goldman Sachs

Sept. 22 (Bloomberg) -- The Wall Street that shaped the financial world for two decades ended last night, when Goldman Sachs Group Inc. and Morgan Stanley concluded there is no future in remaining investment banks now that investors have determined the model is broken.

The Federal Reserve's approval of their bid to become banks ends the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and caps weeks of chaos that sent Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.

{xtypo_quote_right} "There's blood in the water in the industry and the sharks are circling" Peter Kovalski, who helps oversee about $10 billion at Alpine Woods Capital Investors LLC, said at the end of last week. "It all comes down to perception and the current trust within the community." {/xtypo_quote_right}

"The decision marks the end of Wall Street as we have known it,'' said William Isaac, a former chairman of the Federal Deposit Insurance Corp. "It's too bad."

Goldman, whose alumni include Henry Paulson, the Treasury Secretary presiding over a $700 billion bank bailout, and Morgan Stanley, a product of the 1933 Glass-Steagall Act that cleaved investment and commercial banks, insisted they didn't need to change course, even as their shares plunged and their borrowing costs soared last week.