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Well, maybe. But then maybe not. Clearly, the era of the large, "independent" investment banks -- a term that emerged only in the last few years -- is passing. Three out of the five are no longer independent, leaving Goldman and Morgan Stanley. Just as importantly, the two remaining now fit under the same regulatory umbrella of the Federal Reserve as large commercial or universal banks. And the events of the past year have cast a dark shadow over the practice of building business around the ability to leverage up every day with extremely short-term financing. At the very least, we'll see much higher prices for that kind of financing for the foreseeable future, affecting every business that uses leveraged capital. Old-fashioned advisory suddenly looks appealing. But beneath the surface, less has changed than one might think. After all, it's not as if the universal bank model is particularly effective from a management perspective. Only a few months ago, Citigroup Inc. was widely condemned as a Sandy Weill experiment gone desperately wrong; and before that critics demanded the breakup of Phil Purcell's Morgan Stanley -- a "partial" universal bank. What comes through at times like these is exactly what Weill predicted the day his Traveler's merged with Citibank: that bank-like size and diversification would pay dividends in rough markets. Bear Stearns Cos. and Lehman succumbed in part because they lacked the capital to get them through a terrible crisis; Merrill concluded that it's time was next. Yes, it's good to have that cushion of retail deposits, particularly in a country with deposit insurance. But the old commercial banks are simply larger institutions with more regulatory capital, and sheer size matters at times like this. That's not to say, however, that Citi or Washington Mutual Inc. or National City Corp. are out of the woods yet. They're not -- not by a long shot. But the climate today favors the big commercial bank, whether it's Bank of America Corp. or Barclays plc, that is relatively unimpaired. Whether BofA can effectively manage Merrill, whether it can devise prudent means to grow such a behemoth, is a question for another day. And there's another big point here. The ranks of the independents has been radically thinned, but it's not as if Wall Street, however defined, doesn't have a ton of robust boutiques, hedge funds, private equity shops and firms rapidly evolving in new, integrated, global directions to fill the vacuum. Lehman may be gone, and Merrill may be less of a go-go place going forward, but Blackstone Group LP, Kohlberg Kravis Roberts & Co., Cerberus Capital Management LP, Fortress Investment Group LLC, Citadel Investment Group LLC, Lazard, Evercore Partners Inc. and Greenhill & Co. -- and any number of others -- are perfectly prepared to pursue the same risk-reward game, or the same advisory franchise, the bulge bracket once mastered. The big question is, what will be the regulatory response to these firms, many of which are private, none of which find themselves under the thumb of the Fed -- yet? And, given the nature of latter-day speculative finance, they are all tangled with each other in asystemic web. Is Cerberus too big to fail? Or Blackstone? Will they be in five years? And as the firms either disappear or enter the banking culture, will there be a constant supply of talent pouring into the alternative investors or the boutique advisory shops? When we have the time to look back at the last decade or so, we may well see two new trends: the slow unseating of Wall Street investment banks at the hands of institutions with bank pedigrees and regulatory oversight; and the creation of a parallel universe of firms, many private -- some of whom, particularly the hedge funds -- were active in the speculative pressures that took Bear, Lehman and Merrill off the table. These days, all questions of the structure of finance wend their way back to the regulators. The events of the weekend -- and probably the events of the weeks to come -- only create greater urgency to rethink how finance is organized and supervised. The final preliminary conclusion from the events of the weekend really is: It's hard to say this isn't a fundamental crisis anymore. This is no longer about just a bunch of overpaid whiners on Wall Street. This is about everybody. - Robert Teitelman CategoriesComments
From: Prakash,
This may signal an end to the crisis and soon me may see the good old days.
Posted on:
September 15, 2008 2:51 PM
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There's so much to write about, so much to think about, that it's difficult to sort out the important from the trivial, the stuff that matters from the stuff that will blow away and be forgotten. The big question -- what next? -- I'll leave to the fortune tellers among us. What's a lot easier to conclude -- everyone has -- is that Wall Street fundamentally changed this weekend. Obviously, the bankruptcy of Lehman Brothers Holdings Inc., the acquisition of Merrill Lynch & Co. and the attacks on Morgan Stanley and Goldman, Sachs & Co. seem to mark an effective end to the long competitive jostling between commercial banks and investment banks, and the triumph of the universal bank model. 
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You don't say! How comforting. But it's a little late for The Street to come to the realization that regulation by the federal government has "everybody's" interests in mind. I'm surprised you have any soul left to search over this.
Now would the malignant lot of you please clean up this $*#@ing mess?