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Scared New World: Tumult in the Capital Markets Will Transform the Securities Industry

Published by: TowerGroup

Published: Sep. 26, 2008 - 5 Pages


Table of Contents


TowerGroup Take-Aways

The organizational model that had dominated capital markets — the large, independent broker-dealer — is dead; its demise will result in massive changes in the way the sell side conducts business.

Risk assumption was a key strategic driver for the large broker-dealers and led to healthy revenues; risk is now a four-letter word, and the reluctance of brokers to assume risk will constrain both the capital markets and sell-side revenues.

The evolution of organization redesign does not end with the acquisition of broker-dealers by large banks; those new owners will eventually spin off individual units that do not complement their respective organizational mandate or risk profile.

TowerGroup estimates that IT spend by sell-side firms will drop between 14% and 16% from 2008 to 2009 in reaction to the current unstable market conditions.


Report Coverage

Background

Winners and Losers in the New Capital Markets

Exhibit 1

Ramifications of Recent Events on IT Spending

Summary

Abstract

On September 14, 2008, Bank of America announced it was acquiring Merrill Lynch for $50 billion. On the heels of that news, Lehman Brothers announced it was filing for Chapter 11 bankruptcy. This left two independant investment banks standing, but the die was cast. On September 22 came the news that Goldman Sachs and Morgan Stanley had applied to become bank holding companies. Out of the ashes, a new financial structure is emerging. This TowerGroup ViewPoint identifies the winners and losers in the new paradigm, addresses business and regulatory themes for the future, and estimates the ramifications on technology spending for the next three years.

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