This week, TheStreet and RealMoney will be exploring the aftermath of Lehman Brothers' bankruptcy filing and the ensuing market chaos it brought to a head almost a year ago. Read all of our One Year Later coverage.
NEW YORK (
collapse a year ago was supposed to mark the death of the investment bank and the superiority of deposit-taking commercial banks.
Big leveraged trading bets and thin capital cushions ultimately led Lehman to bankruptcy and
into distressed sales, feeding the conventional wisdom that the era of dominance for big Wall Street banks had come to a close.
But the troubles of
Bank of America
showed that having a large deposit base didn't preclude big problems. And, conversely, the quick rebounds of
, a former investment bank, and
, which has a big retail banking business, suggests a simple lesson to take away from the past year: Good managers and well-run companies are more important to a company's success than its business model alone.
In the days after Lehman's collapse, the advantage of having a large base of deposits -- the core of the commercial banking model -- became more apparent than ever. The biggest weakness that dragged down companies like Bear Stearns and Lehman is that they relied heavily on short-term funding, borrowing billions each night to fund their businesses.
, the remaining two major, standalone Wall Street investment banks, were able to survive last fall by getting quick approval for bank holding company status from the
. This made them eligible for certain government aid programs, but also was a nod to the growing conventional wisdom that being a commercial bank was preferable to being an investment bank.
Morgan Stanley and Goldman each retain a strong investment banking identity, but each has dealt with the crisis in distinct ways. Goldman is unapologetic about sticking to its roots, while Morgan Stanley has dabbled in retail banking businesses like savings accounts and certificates of deposits. Still, it will never be mistaken for
, which, despite its newfound enthusiasm for
, always will be more oriented toward consumers and small- and mid-sized businesses.
So while investment banking may not be going away completely, some suggest it has ushered in a return to its roots, creating an opportunity for smaller advisory-oriented companies like
Bill Wilhelm, a professor at the University of Virginia, and co-author of a 2007 book on the investment banking industry, believes Lehman's failure was the inevitable result of an unsustainable relationship between savvy advisors to companies and massive computer-driven trading operations that existed at all the large investment banks.
"Management of human capital takes place best in relatively small organizations that don't depend heavily on financial capital," Wilhelm says.
It is certainly noteworthy that shares of Greenhill have soared more than 300% since being sold to the public in May 2004, besting all the big banks, including Goldman. The other publicly listed boutiques haven't done nearly so well during that time, however.
Another group that has tried to take advantage of the crumbled landscape of U.S. investment banking is European banks.
bought Lehman's attractive investment banking and capital markets businesses on the cheap after Lehman filed for bankruptcy, while it and European competitors like
have hired away lots of talented executives that grew tired of the scrutiny of Wall Street pay and practices that came with the federal bailout of U.S. banking giants.
Nevertheless, Goldman and JPMorgan are still dominant players and
fared as badly as many big U.S. banks.
"I don't see much change in the calculus," says Bill Cohan, a former investment banker and author of "House of Cards," a book about the fall of Bear Stearns.
Bankers from U.S. firms going to European ones also is nothing new, according to Cohan.
"If you're done at Goldman or Morgan Stanley and you still want to be around, then Deutsche or Credit Suisse have been bids that people will take," he says.
But while Goldman's dominance is indisputable and has now lasted for several years, some might now argue that Credit Suisse is a better place to be than Morgan Stanley. JPMorgan only emerged as a leader as a result of the crisis. Before it hit, Lehman and Bear were the banks to beat.
So while companies may matter more than business models, today's winners may be more vulnerable than they appear.
Written by Dan Freed in New York