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GUEST COMMENT: A handful of global firms will emerge from the rubble

The events of this past weekend – coming six months after Bear Stearns was thrust into the arms of JPMorgan – leave America’s financial system in tatters, but not without hope for the emergence of a new order on Wall Street, that will once again return to its main purpose of efficiently allocating capital on a global basis.

While the demise of Lehman could have been foreseen in the wake of Bear’s departure, the truly shocking development of the weekend was the decision by John Thain, CEO of Merrill Lynch, to sell the brokerage and investment banking behemeth to Bank of America.

Thain must have concluded that with Lehman gone, the sharks would turn their attention to his firm, which remained vulnerable despite raising billions in capital through sales of equity and key assets. Rather than test the proposition that his former boss at Goldman Sachs – Treasury Secretary Hank Paulson – would provide financial support to a buyer of Merrill should its prospects continue to deteriorate, Thain cleverly took the bull by the horns – so to speak – and found a buyer while the firm was still viable.

No doubt he and Ken Lewis, CEO of Bank of America, were nudged into this marriage by an increasingly wary Paulson.

After the dust settles from all this turmoil, the only sensible conclusion must be that in the long run this is just the sort of “creative destruction”, in the memorable words of economist Joseph Schumpeter, that the system needed.

The only thing that was consistently underpriced in this last credit bubble was risk. The flushing of Bear Stearns, Lehman, and Merrill Lynch as we once knew it, will not prove to be deleterious in the long run. What will emerge from the rubble are a handful of global firms – some part of banks, some not – that will have learned once and for all how to price credit and risk.

If the survivors fail to heed that lesson of this crisis – as seems to be the wont of short-term-thinking Wall Street bankers – we might as well start now preparing ourselves for the next blow-up and for a world very different from the one we live in today.

William Cohan is author of The Last Tycoons, winner of the 2007 Financial Times/Goldman Sachs Business Book of the Year Award.

Comments (29)

  1. Goldman Sachs
    Bank of America (inc ML)
    Morgan Stanley
    Deutsche Bank

    Will be the world’s top 5 banks now. In the above order.

  2. henry – in terms of what?

  3. Henry, for once i agree with you – however maybe move MS ahead of BoA/ML

  4. I will take Deutsche bank off that list and include Barclays

  5. JP Morgan
    CS (including UBS)
    RBS (jncluding Barclays)
    And some 2/3rd Tier IB player but large CBs will emerge in the Top 10-15 like BNPP (with Soc Gen), Santander, ING (with Fortis), Commerz, Intesa, etc…

  6. Well, apart from anything else, they’re the only ones left who have half decent talent.

    The rest are or were filled with shabby wannabe morons, nothing more, nothing less. They deserved what they got. I actually had to chuckle as they walked out of LEH yesterday.

  7. My bets in Europe:

    Cs merged with UBS (defensive measure)
    Santander merged with BBVA
    BNP and Soc Gen

    My list in the states:

    Morgan Stanley
    BoA (with ML)

    Dont you think banks are following the same trend than Deloitte, KPMG, Pwc… did in the past til became “Big 4”? (

  8. The above comment not me.

    ‘Big Deal’, I mean in terms of general prestige / kudos you get for working there.

    And yes I agree on the back of this Barclays news, Barclays above DB. They’re gonna be awesome now, I’d happily move there in a couple of years.

  9. prestige and kudos you get from working there?

    seriously, if you’re working in fiance it’s probably about the money, does anyone really LOVE this stuff? like you would love surfing, or reading a book, or playing football. no. you wouldn’t do it in your spare time.

    If you’re that vain about your brand, go and work for coca-cola.

    personally I’d prefer to work in sustainable businesses where you get paid bucketloads of money, and there are heaps of businesses out there that will (and do) pay much more than your top 5 kudos list. The big brands are not the be all and end all.

    I hope the kudos helps when you’re trying to impress a girl.

  10. I take it Johnny got rejected from Goldman Sachs then, and needs to prove to himself how prestigious brand names are irrelevant. Your insecurity reeks through.

    And are you kidding, you think people don’t love finance and don’t do it in their spare time? What utter nonsense. I find global financial markets a lot more genuinely interesting and exciting than most things. No that doesn’t make me sad – the Sunday night fireworks of Lehman blowing up were more exciting than any soap opera. Commodity prices, stock markets collapsing, US mortgages, recession, the development of China and India, it is genuinely interesting stuff. In my spare time I watch Bloomberg/CNBC, I read the financial press, I invest in products. Even if its not your thing you can’t possibly say aspects of the front office are boring, especially in these times.

  11. Well said Henry, here here…

    I only go on holiday to look at the respective country’s stock exchange.

    I only wear glasses so that I can stare at Bloomberg with more clarity.

    I only think of the stock markets when I’m with my lady friend.

    My bonus is more important to me than global poverty and injustice.

    Coca-cola, a brand? It wouldn’t hold much weight in an executive board room meeting…

    Pah! The thought of it all…

  12. Johnny you must be very naive to think that there are people who are not so passionate about finance to the extent of doing the stuff in their spare time. I watch and read financial news, and work on financial models 90% of my spare time. Its as interesting to me as any other pass time.

    If you work in the IB industry then seriously think of changing careers. It is incompetent people like yourself who are responsible for the current market crises. You need to get weeded out.

  13. Hope you are not analysts. Umm.. HSBC?

  14. Agree with Henry & Co.

  15. Henry, you’re not on Goldman Sach’s graduate training scheme are you? Because it does tend to attract / create a, erm, ‘particular’ type (jury’s still out of the nature vs. nuture on the GS training scheme), which you appear to personify.

    Goldman = Weird Cult? Discuss Reply
  16. Henry, your a doucheb-bag.

  17. Henry is just a guy that works for efinancialcareers. His, mainly idiot, views have douled the number of comment postings.

  18. I completely agree with Anon. Henry is just a scoup by efinancialcareers to get more people posting more comments on this website. There is no way a dedicated finance professional will have time to read and comment on almost every posting here.

    Unless he works as a tea boy for Goldman, and has the time to look at efinancial while waiting for his next delivery order.

  19. Hi – Henry has nothing to do with eFinancialCareers and nor do we necessarily share his opinions. We print his comments in the interest of free speech, but edit out the most objectionable elements.

    Sarah, Editor, eFinancialCareers Reply
  20. You know, the most pathetic thing is this non-stop barrage of ‘omg you’re lying you’re not a banker nobody would have time to post here all day’ drivel. Its very easy, even in this busy market, to do your job tip-top and meanwhile now and then be surfing the web, reading articles, making comments that take a whole 1 minute to write.

  21. Yes Henry – but as a ‘tip-top’ banker, one would question your motivations for posting on almost every article. Haven’t you got anything better to do?

    Also, I find it hilarious that our very own Sarah @ efinancial has to edit out the most objectionable elements of your postings – you really must be some piece of work Henry.

  22. OMG (And I cannot believe im doing it myself here) but why does everyone rise to this guy. Banker or no banker. Serious or part of some elaborate “joke” whats not up for debate is that Henry is a genuine loser. Someone who is a hot shot and spends their time posting rubbish on every article = friendless loser. Someone who is doing this as part of a windup because they have nothing better to do = friendless loser.

    Get over it.

  23. I’m here because I have a keen interest in my industry and its developments. The news.efinancial page is one of the best around for up-to-date colour, and this comment box exists precisely for people to engage in discussion and debate. There’s a lot of things people say I don’t agree with hence post a lot. But no, writing 5-10 posts a day at most (note there’s at least 1 fake ‘Henry’ pretending to be me) in the 12 hours I spend at work does not mean I must be a ‘loser’. Other traders spend their spare time on BBC Sport, Facebook, Yahoo Messenger or car sites. I spend that time reading and discussing about an industry I’m passionate about. That really doesn’t make me a “loser”.

  24. Shut up Henry – you really are a loser.

    Henry_is_a_loser Reply
  25. Discussing about an industry you are passionate about doesn’t make you a loser at all…..Making pathetic/demeaning/condesending/moronic/cliched (delete as appropriate) put downs however does not constitute discussion. Someone who posts comments on efinancial careers on a sunday night laughing at the demise of another bank and people he knows losing their jobs….i repeat = friendless loser

    Last from me on this as im doing exactly what I said not to. Rise to this moron. Its an internet comments site for godsake!!! Im ashamed of myself.

  26. Ok, so how do we know that you’re not the fake Henry?

    All comments made by a ‘Henry’ from now on have no credibility whatsoever – oh, hang on, we’re already at that stage aren’t we..?

  27. What about RBC – their name was involved in the initial discussions for both Bear Sterns & Lehman – where do ppl think they will stand? Potential to become a Global Player?

    Moving things on Reply
  28. Henry – you are a complete plonker
    i still laugh at the time you posted all your compensation levels through time and when you got promoted and stuff, like we’re all going to be jealous

  29. RBC to takeover Goldman – where would you go Henry?

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