Tag Archives: Wall Street

The world is changing: investment banks are no more…

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The recent developments in the financial world are forcing vast changes to the economic climate and the markets are desperately trying to right themselves amidst the evolution many banking sectors are experiencing. In one week the era of the independent investment bank has ended, deeply changing the worldwide financial landscape.

‘Wall Street as we’ve known it for decades has ceased to exist’, explains The Wall Street Journal, though the gravity of such a change is of course affecting London: six months ago there were five major investment banks, now a portion of the market has vanished overnight; Lehman Brothers and Bear Stearns have collapsed, Merrill Lynch is getting bought out by the Bank of America, and Morgan Stanley and Goldman Sachs are becoming commercial banks.

Two banking giants filing for bankruptcy is a clear sign of a problem with the system, and now the survivors have to arrange their affairs to conform to the capital requirements and other rules that govern such commercial banks.

Perhaps this is one of the greatest tests to the global economy in decades: and a strong example of rules required. Lax regulations have allowed investment banks to boost their profits for almost twenty years by borrowing money and investing in ever more risky schemes. And now they are paying the price.

What will happen now? Can we be sure that the worldwide economic machine is correcting itself against the greed of man?

Lehman Bros & Co: a black monday

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It was a tough morning for many going to work in The City today; it’s Monday and it’s a black day for the Market. The fourth-largest U.S. investment bank has gone bust and all the front pages are dedicated to what could be the largest scale bankruptcy in history. Bloomberg.com explains in detail what is happening: “Lehman Brothers Holdings Inc. succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history. The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, has filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, surpasses WorldCom Inc.’s insolvency in 2002 and Drexel Burnham Lambert’s failure in 1990.”

Unfortunately the crisis is not limited to the Lehman collapse: the Bank of America has brought Merrill Lynch, and Wall Street is in crisis. Thetimesonline.co.uk says: “London woke up to discover that, overnight, two of the biggest pillars of Wall Street had either collapsed or passed into new ownership, the world’s largest insurer was forced into an emergency restructuring, and 10 banks put together an emergency fund to lend to any other ailing banks”. This bad news will probably not come as a surprise to many. But the problem is serious and involves all the Markets and a huge numbers of bankers, who can’t predict anything about their future. “One New York observer (thetimesonline.co.uk goes on to say) estimated that 40 per cent of Merrill’s workforce, or 24,000 people, could be out of a job. The situation at Lehman will inevitably be much worse”.

But, as Douglas Adams would say, Don’t Panic! “This is undoubtedly the worst banking crisis since the 1930s, but traders shouldn’t panic and start to sell shares of other leading banks. It doesn’t make sense. American, British and other global banks  are cooperating to make the transition as smooth as possible”, said Allister Heath, City A.M. editor.