Morgan Stanley

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Goldman Sachs

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could be forced to sell billions of assets in commodities and commercial real estate due to a tougher regulatory environment, according to a report from Bernstein Research.

Both institutions last year received permission to convert to bank holding companies to address concerns about their ability to finance themselves. However, there are limitations on the size of non-banking related businesses such holding companies are allowed to have under the Gramm-Leach-Bliley Act of 1999.

Further, the regulatory proposal released by the Treasury Department this week emphasized the importance of protecting, "the long-standing wall between banking and commerce -- which has served our economy well."

Morgan Stanley and Goldman Sachs, commodities trading powerhouses, own so-called "physical" commodities like power plants and oil tankers. This allows them to exploit differences in physical commodities prices and the "paper" prices traded on exchanges. For instance, if the banks are trading heating oil and prices are low, they own facilities that allow them to store it and wait for higher prices, the Bernstein report says.

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JPMorgan Chase

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also has a large physical commodities business it picked up when it bought

Bear Stearns

last year.

Commercial real estate activities will also face limitations, as will other private equity investments, the report states, noting Goldman has an $18.2 billion merchant banking portfolio, and Morgan Stanley bought Crescent, a real estate investment trust, for $6.5 billion in 2007.

Goldman and Morgan Stanley have five years to get rid of any businesses their regulators don't approve of, and they may be able to get waivers from the restrictions. Still, that will be far harder than it would have been a year or two ago, given the current regulatory environment, according to Bernstein analyst Brad Hintz.

"It looks like you've got a hangin' judge who's now in charge of regulations and I'm not sure asking for special dispensation is such a great idea right now," Hintz says.

A Goldman spokesman wrote in an email, "there are significant elements in the report you referenced that are not consistent with the facts," but declined to elaborate. A Morgan Stanley spokesman declined to comment. JPMorgan spokespeople did not respond to an email message.