by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
banks and securities firms look to “hook-up” with each other:
Morgan Stanley slumped more than 46 percent in early trading as investors fretted about its ability to quickly find a buyer or cash infusion from a foreign investor. Rival Goldman Sachs Group Inc. skidded 25 percent.
Morgan Stanley shares rallied to close up about 4 percent while Goldman Sach’s stock was lower by almost 6 percent. And Washington Mutual Inc. shares soared more than 48 percent.
The next hangover is gonna be even worse…cuz when the lights come on, we’re all gonna be ugly.
Sean Purcell says:
Brian,
I hear Wamu is being courted by Citi and Wells Fargo. Wells is probably the stronger candidate but Citi always took a lot of pride in being the largest financial company and that was taken recently by B of A. Does anyone else think they may risk overpaying to regain the title?
As for UGLY… it looks like Morgan is in talks with Wachovia! Makes me think of two cousins marrying. They may know each other well, but what they produce together is gonna have problems. 🙂
September 18, 2008 — 4:07 pm
Tom Vanderwell says:
Sean,
The last I heard, WaMu had an auction and everyone has said, “No thanks, I’ll wait and pick up some of the pieces once they are “owned” by the FDIC.”
I’m hearing enough bad things about Citi’s financial position that I don’t think they are seriously in a buying position. Some analysts are saying that they are already technically insolvent.
I think a lot of them are going to be UGLY, but I like the way Brian put it better.
Tom
September 18, 2008 — 4:41 pm
Sean Purcell says:
Tom,
And I’m hearing that Wells wants no part of any of this. Maybe the lights in this bar are too bright. 🙂
September 18, 2008 — 4:55 pm
Tom Vanderwell says:
I think when you put the term Option ARM with bank portfolios, the lights in the bar are too bright for even the most foolhardy of bankers, unless Uncle Sam is backing them up…..
September 18, 2008 — 5:41 pm
Brian Brady says:
The Wells guys stayed away from the bar althogether
September 18, 2008 — 7:38 pm
Thomas Johnson says:
Maybe the Wells guys got watered down booze and stayed sober.
September 19, 2008 — 5:31 am
Michael Cook says:
Perhaps I will be the lone dissenter here, but I think the banks that do deals now will be much better off. Right now I think the BofA Merrill team is the team to beat. When everything settles they will have the largest broker network, a great investment banks and one of the largest commercial banks.
Size could be the winner, unless regulation forces a different outcome. Any bank that does not pick up an investment bank on the cheap will have missed a huge revenue producing opportunity. When the dust settles there is going to be a tremendous amount of investment banking to be done. Having the cash generation capabilities of a commercial bank, combined with the ability to put it to work faster and in much greater volume will probably define the new banking model.
September 19, 2008 — 7:47 am
Brian Brady says:
MC:
Could the more conservative nature of bankers stifle the creative financing approaches the securities firms have given us?
While the levered mortgage approach failed, may other approaches, championed by Wall Street, have succeeded.
September 19, 2008 — 7:55 am
Sean Purcell says:
Michael,
I commented elsewhere that B of A may be on to the only strategy that matters: as quickly and prudently as possible become “too big to fail.” I don’t think there is any question they have made some great deals, but they have also bought quite a few headaches. I just think their insurance policy is the TBTF motto.
September 19, 2008 — 8:38 am
Tom Vanderwell says:
Sean,
But now isn’t everyone except for the US taxpayer too big to fail?
😉
Tom
September 19, 2008 — 8:43 am
Michael Cook says:
This is the question of regulations because I would doubt after this the government allows entities to become too big to fail. A lot of banking regulation exist to avoid this very phenomenon. No bank can hold more than 10% of the nation’s deposits, etc.
There is probably a lot of regulation to come, but I am pretty sure that it is not going to be as easy as simply merging your way to a government guarantee.
Brian: That really depends on the banks culture. Investment banking is highly volatile, while commercial banks are very steady. The push on earnings typically pushes banks to be more aggressive, but their conservative nature will certainly curtail the most risky strategies. The jury is out, but you certainly could be right. Perhaps this is why Goldman would rather go private than merger with a bank.
September 19, 2008 — 9:24 am
Sean Purcell says:
Tom – well said, although at times I climb off the scale and wonder if I might not be too big to fail. 🙂
Michael – regulations (great, now I have to wash my mouth out) are usually just a test to see how smart business can be about getting around them. In any case, isn’t B of A too big to fail already?
September 19, 2008 — 9:37 am
Brian Brady says:
“Perhaps this is why Goldman would rather go private than merger with a bank.”
Hail Goldman.
September 19, 2008 — 10:06 am