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Still more horrors ahead for new dominant players
What will Wall Street and the City of London look like when the smoke clears? The collapse of Lehman Brothers and the rescue of Merrill Lynch do not mark the end of the financial crisis.
- Tracy Corrigan, The Telegraph Group Limited, London 2008
- Published: 23:52 September 16, 2008
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London: What will Wall Street and the City of London look like when the smoke clears? The collapse of Lehman Brothers and the rescue of Merrill Lynch do not mark the end of the financial crisis.
There may well be more failures - former US Federal Reserve chairman Alan Greenspan, hardly known for his pessimism, suspects there will be, and the turmoil in financial markets on Monday certainly points that way. But the fates of Lehman and Merrill, and the refusal of the US government to provide further financial underpinning, has shed at least some light on the likely shape of the post-crisis financial world.
For one thing, the reins of power will no longer rest with the great Wall Street investment banks, which once pulled the levers of corporate America. Only Goldman Sachs and Morgan Stanley remain. Their clout is likely to be much diminished.
Does the demise of the investment bank matter? In practical terms, not really: the main services, trading and underwriting debt and equity, advising companies on mergers, are already provided by big global banks such as Citigroup, Credit Suisse and Barclays.
The environment for all banks will be tough, even when market conditions improve. Financing costs will stay high, given what we now know about risks involved, and battered taxpayers will want better regulatory protection.
For the small group of commercial banks which will dominate the City and Wall Street in the coming years, there are still horrors ahead - more bad debts, the rescue of failing rivals bringing with them new bad debts. But the underlying investment banking business this year has been surprisingly robust.
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