Realigning an Industry: New Structure of Capital Markets After Demise of Lehman and Sale of Merrill

Published by: TowerGroup

Published: Sep. 17, 2008 - 5 Pages

Table of Contents

TowerGroup Take-Aways

This is a period of extraordinary change in the profile of the capital markets as evidenced by the events of the weekend of September 13 and 14.

With the elimination of two of the top four stand-alone investment banks last weekend and three of the top six in the past six months, there will be much less capital commitment and risk assumption and far fewer deals than in the last several decades.

As banks assume control of capital markets firms, they are positioning themselves to become the wealth management firms of choice.

TowerGroup has long postulated that banks were best positioned to deliver holistic wealth management, a perspective that is furthered as a large US bank aligns itself to offer real private banking much as has been seen in Europe for more than a century.

TowerGroup expects brokerage firms to curb use of derivatives in the near future, while firms dramatically curtail creation and use of structured products; fewer firms will facilitate these transactions, leading to much lower volume in the products.

TowerGroup expects to see a dramatic drop in technology spending across the capital markets industry as several top spenders either exit the business or reduce their overall commitment to IT investment.

Report Coverage

The Weekend That Shook Up Wall Street

Exhibit 1

What the Acquisition of Merrill Lynch Means for Bank of America

What the Acquisition by Bank of America Means for Merrill Lynch

The Future of the Stand-Alone Investment Banking Model

Exhibit 2

The Impact on IT Spending

Summary

Abstract

This TowerGroup ViewPoint assesses the implications for the capital markets industry of the bankruptcy filing of Lehman Brothers and the acquisition of Merrill Lynch by Bank of America. These two events, taking place virtually simultaneously over the weekend of September 13 and 14, will represent the most significant change to US capital markets stucture since the 1930s.

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