Future Of Investment Banking

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January 18, 2009

[FUTURE OF INVESTMENT BANKING]

The Future of Investment Banking Strategies to Survive

Paper presented by:

Sudipto Das
Mob – 09717593939 Email: sudipto.das10@bimtech.ac.in Sudipto8@gmail.com

Abhishek Bhartiya
Mob – 09717593631 Email: abhishek.bhartiya10@bimtech.ac.in abhi.bhartiya@gmail.com

College – Birla Institute of Management Technology, Greater Noida Team ame – The Blue Blood

BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY

1

January 18, 2009

[FUTURE OF INVESTMENT BANKING]

Executive Summary It is said that the US crisis is the delayed consequence of the Glass-Steagall Act which was repealed in 1999 and the introduction of Gramm-Leach-Bliley Act which had allowed the functioning of commercial banks to merge with the functioning of the investment bankers. Our research paper covered the issues like when did the crisis start, what are the reasons leading to the crisis, who all were affected and the measures taken by the US government to make things correct. We also tried to cover the aspect of investors’ perspective and why it all went wrong. It’s a vicious circle between a contracting economy and greater credit and financial losses feeding on the economy. Some believe that investment banks are not going to disappear in the future, but they will be smaller, specialized institutions, like the merchant banks of old. There are plenty of advisory firms, hedge funds and private equity funds and this Wall Street crash will create more. Starting with the fire sale at Bear Sterns earlier this year and culminating this week with the shocking news of the Lehman bankruptcy and rush sale of Merrill Lynch, some people prophesies seem to be coming true before our eyes. Now, only two of the five largest independent brokers–Morgan Stanley and Goldman Sachs–remain standing. With reports that Morgan Stanley is considering a merger with Wachovia, many in–and out–of the financial world are questioning the future of investment banking. The holy reason to believe that the investment banking is not going to fade away is the deposits made by the public in the commercial bank are sacred. Individuals, corporations, and non-profits place their deposits into a bank and expect it to be safe. They expect 100% surety, immediate access, and complete transparency with their cash. This is even true with money funds. We had even tried to figure out the role of regulators in the whole thing and focused as well on some of the measures that they can take to improve upon the things. We studied that due to the interconnectivity of the countries to a great extent the crisis could absorb quickly into the market and hopefully, it had done already what had already happened.

BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY

2

January 18, 2009

[FUTURE OF INVESTMENT BANKING]

Our Perspective: The current condition in the US is mostly a result of greed and poor governance, and there is certainly enough of that to go around. We can blame the speculator who thought real estate only went up; borrowers who took on too much debt; banks that gave loans to virtually anyone who applied; investors who wanted higher interest rates; investment banks that took on too much leverage; or auditors and legislators who applied pressure to banks to make loans to the less financially capable, and regulators who turned a blind eye and should have know better. There is certainly at least $840 billion of blame to go around. Within the past six months, five of the largest investment banks have either folded,been sold to commercial banks, or have become commercial banks themselves; and two of the top ten commercial banks have had forced transitions. In addition, American International Group (AIG)—one of the largest insurers, has been bailed out by the federal government, and Freddie Mac and Fannie Mae have been nationalized. At least ten European banks have been nationalized or bailed out and there are also rumors that additional financial...
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