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Is there a future for U.S. investment banks |
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Sunday, 21 September 2008 |
When Chase Manhattan bought JPMorgan in autumn 2000, many analysts believed that the deal will provoke a series of mergers in the sector of investment banks . Bankers forecast that companies like Bear Stearns, Lehman Brothers and Merrill Lynch will have to union with bigger lenders or risk expulsion to the periphery in the market.
Eight years later, these predictions become reality, says Financial Times. After an exceptional weekend of Wall Street Lehman sought protection from bankruptcy, a Merril Lynch was bought by Bank of America. So-called "pure" investment banks were Goldman Sachs and only Morgan Stanley.
The crisis raised questions about the viability of the investment banks that are not part of larger institutions.
"Merrill was a strong and respected competitor in the market," said Ken Lewis, chairman and CEO of Bank of America. "But the market continues to question the sustainability of independent investment banks."
Yesterday, shares of Morgan Stanley become cheaper by almost 9 percent by early afternoon in New York and lost almost half its value over the past 12 months. Shares of Goldman Sachs decreased by 7 percent.
For executives at a large universal banks - which combined deposits and investment banking crisis is testimony to the vulnerability of banks of Wall Street who do not have many resources and rely heavily on corporate customers to finance their activities.
These are difficult times for investment banks, says CEO of American Commercial Bank , cited by the publication. "Given the events of the past few months, it is difficult to argue that it is better to specialized in only one product line, whether investment banking, credit cards or insurance."
There are those however who reject the thesis that the business model of investment banks like Goldman Sachs and Morgan Stanley no longer operate them and inevitably they are to be acquired by deposits institution. In their disappearance of the three major competing companies will benefit both survived banks.
Capital markets will not disappear, investment banking will exist in future and will have only two companies that specialize in this area, which does not look like a prerequisite for disaster, say experts.
Independent investment banks face two fundamental challenges: capital and liquidity. Crack the credit bubble and dry market Securitization will be beneficial for banks that have sufficient funds.
Changes in the market and highlight the vulnerability of investment banks because of their dependence on short-term market repurchase agreements to provide financing.
All this, however, does not mean that Goldman and Morgan Stanley have to surrender their independence, says more analysis. |
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