This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Deal: Post-Lehman Wall Street Remains Gun-Shy

NEW YORK ( The Deal) -- The collapse of Lehman Brothers sent a seismic shock through Wall Street, but the wrath it incurred among Main Street and the regulators entrusted to protect its denizens continues to change the business of banking five years later, especially when it comes to institutions whose size and interdependence with the global economy make them systemically important.

Amid the crisis of 2008, the superficial structure of banks changed quickly. Lehman filed for bankruptcy, Bear, Stearns & Co. failed and was bought by JPMorgan Chase (JPM - Get Report), Bank of America (BAC - Get Report) bought Merrill Lynch (ML), Wells Fargo (WFC - Get Report) scooped up Wachovia and Citigroup (C - Get Report) suffered losses that would trigger the sale of its Smith Barney business to Morgan Stanley.

Now the "systemically important" designation under the Basel III accords has almost become a curse for the survivors. Following the flurry of crisis mergers, a fear of becoming a "too big to fail" financial institution has politically handcuffed large banks from undertaking weighty acquisitions.

Instead, they continue to look inward, overhauling their businesses and moving away from high-risk sectors such as proprietary trading, fixed-income and commodities, which have become operations that either no longer return their cost of capital because of stricter regulatory demands or pose too high a litigation risk. Wealth management and other fee-generating businesses are favored now for their stable revenues and lack of additional capital requirements.

Even the ever-charging, go-go culture of Wall Street, once a badge of honor, has changed as banks bow to public perceptions about how they operate. One senior banker pointed to the regulatory and media scrutiny of working hours after a BofA intern was found dead in the shower after reportedly working 72 straight hours and of hiring practices in the wake of JPMorgan allegedly hiring the children of powerful Chinese officials. Such practices ¿ grueling work hours and nepotism in hiring ¿ were viewed as standard until the credit crisis, the banker notes.

This newfound sensitivity has affected large banks' willingness to participate in certain businesses. Witness JPMorgan's exit of the student loans sector. While declining profitability and stiff competition have been cited as reasons for the bank's departure, industry pundits point to the bad impression that would be created by chasing down students who are unable to meet payments.

Some observers said they believe this perception issue will lead banks to move so cautiously with new businesses and products that they could come to resemble utility-type operations, with greater financial innovation occurring at less-scrutinized private equity and hedge funds.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
C $52.90 0.00%
BAC $15.64 0.00%
JPM $62.60 0.00%
MS $37.36 0.00%
WFC $54.70 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs