The End of Blue Blood Investment Banking
With Morgan Stanley and Goldman Sachs targets of the short sellers, we may see both eventually merging with banking partners, thus ending an era of the bulge bracket investment banking firms. And entering a new era that will consolidate financial services among a few well capitalized banking conglomerates like BoA and JPMorgan Chase.
Commercial banks are historically conservative, their business model is "recurring revenue" based essentially on the spreads they carve out from the loans they make and the deposits they receive.
Investment banking is historically risk taking. Their business model is based on "real time revenue" - making money on lucrative transaction fees - underwriting, M&A advisory and brokerage - by tapping into what is popular and hyped with their investor base. Junk bonds, tech stocks, REITs and mortgage backed securities are financial inventions sold en masse to Main Street. Wall Street had already been hurting in 2001 with the tech bubble unwinding, and with their idle hours, all the Street firms developed the new new mortgage thing to sustain their bonuses. In the end, mortgage backed securities were the industry's coupdegrace.
Wall Street is like real estate. The industry's sudden contraction will leave behind a smaller corps of real players who will compete for business based on service and execution.
Quote of the day:
Minyanville: Is this Capitulation?
Is "this" capitulation? Not through my lens. Not with the VXO at 37. Not with the BKX 35% above the July lows. Not with everyone asking if it's a capitulation. I've lived through capitulation, my friends--it occurs when you don't care, when you stop trying, when you wet your pants.
Patrick, I knew you would be able to make sense of this mess. Thanks! The worst part is that the people who got us into this mess are the same people getting us out. Basically making money on the upside and downside and laughing at all of us.
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