7 ms·
The scary thing is that by the end of the year or so, we could be left without any of the former big five investment banks. The only remaining titans would be
by ctkrohn 18y ago
The scary thing is that by the end of the year or so, we could be left without any of the former big five investment banks. The only remaining titans would be the commercial banks -- Citi, BofA, JPMorgan. I'd expect new market leaders to emerge from the current cohort of smaller regional dealers, boutique special-purpose investment banks, hedge funds, etc., but it will be a while before all this is sorted out. Even Goldman is endangered... anyone without a significant deposit base who is forced to rely on borrowed money can be struck down at any time.
This afternoon, the cost of insuring Goldman and Morgan Stanley's debt via credit default swaps went through the roof. We'll see how things play out.
- tptacek 18y agoWhat'd you think of the comment comparing BlackRock's fate to ML's? Are BlackRock and Citadel and places like that the new ML's and Lehmans?
- fallentimes 18y agoJust talked to a Blackrock guy today. Something really interesting that I didn't know is that Blackrock does not invest on their own behalf. He said this is why their CEO, Larry Fink, is often quoted as stating: "We do not take on balance sheet risk". This severely limits balance sheet risk and although it doesn't make them bullet proof or anything, it certainly makes me feel better about their chances. Additionally, although this strategy hurt them in the short term, it seems to be working in the long term.
- ctkrohn 18y agoCitadel, definitely. They already have started doing certain things once the domain of investment banks -- they make markets in stocks and options, for example. Recently they've hired a number of prominent fixed income traders, e.g. the head of JPMorgan's mortgage trading department. I think they're well on their way to becoming a leading securities firm. They're certainly big enough to purchase a smaller boutique to bring in expertise in mergers, IPOs, debt offerings, etc. The only problem is regulatory, given that they're a hedge fund, but I imagine this eventually could be resolved -- after all, Citi and JPMorgan all have large internal hedge fund arms. Blackrock is a very different company. They manage more than a trillion dollars worth of assets, making Citadel seem paltry at ~$25bn. They haven't really shown much interest in branching away from their area of expertise: fixed income asset management.
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- tptacek 18y agoPeripheral question: what do you think ML looks like 18 months from now? Is there still an ML? I watched BofA buy ABN up close, and they were pretty aggressive.
- rwebb 18y agoBofA already cleaned house in their banking group earlier this year. doubt the need more bankers.
- newt0311 18y agoUm... What makes you think that Goldman is endangered? It stock price is only down 20% from 09/2007 which is bad but not even close to catastrophic (and significantly better than most other investment banks). Furthermore, it is one of the few financial institutions which foresaw (to a small degree) the oncoming subprime crisis (and made over $4 billion through shorts).
- ctkrohn 18y agoRight now things seem stable there, but the same could have been said of Lehman pre-Bear crisis. The problem is that like Bear and Lehman, Goldman relies on financing from other Wall Street firms to finance its operations. While a commercial bank like BofA also borrows money on a daily basis, it also has a massive base of deposits which it can use. More than 10% of our nation's deposits are held at BofA -- a staggering number. That's why BofA could afford to buy Countrywide and now Merrill, and why JPMorganChase could afford to buy Bear. If LIBOR (the interbank lending rate) spikes, if repo rates spike, if funding desks increase their haircuts (thereby limiting the amount of money that can be borrowed against a given par amount of collateral), firms like Goldman will find it much more expensive to operate. And given the troubles that other investment banks have had, I don't think banks are going to be very willing to lend to each other when we open up tomorrow morning.
- furiouslol 18y agoI wouldn't be surprised if Goldman/MorganS snap up the likes of Wachovia just to stay competitive.
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- ehedberg 18y agoGiven the difference in market cap, I'd be surprised if either could afford it - GS =~ 60bn, MS =~ 40bn, WB =~ 33.5 bn on 835bn AUM. They're not exactly small, post A.G. Edwards.
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- njm 18y agoQuick question, if you'll indulge: where do you find those CDS numbers you mentioned?
- immad 18y agoMaybe he has access to a Bloomberg Terminal
- steveplace 18y agoWhat I wouldn't give for a Bloomie.
- immad 18y agoI used to work at Bloomberg, you would be surprised how little everyone used it even though it was free to us.
- dabeeeenster 18y agohttp://www.bloomberg.com/apps/news?pid=20601087&sid=a4G.8Si5v2rU&refer=home http://www.bloomberg.com/apps/news?pid=20601087&sid=a4G....
- steveplace 18y agoI would love to be around your job right now as a mortgage bond trader. Interesting times we live in. I'd like to hear some more of your views... if you wish, you can contact me [see profile]. N.B.: Long SKF.
- aswanson 18y agoCalled 6 months ago...did you play it? http://news.ycombinator.com/item?id=138567 http://news.ycombinator.com/item?id=138567