Monday, January 21, 2008

How Will the Banks (Investment and Otherwise) Replace the Mortgage Biz.? (BAC; C; JPM; MER; GS; MS; UBS)

UPDATE: The Financial Times Tony Jackson has a similar query in the post immediately above.
My guess is they are salivating at the prospect of carbon deal origination, carbon packaged products, carbon trading, carbon derivatives; you know, everything they did with mortgages, with the added benefit that rather than being based on real property, the business will be built on the absence of an invisible gas.
Of course, that's just cynical old moi.
Here's Investment Dealers Digest:

Wall Street banks lost nearly half-a-trillion dollars in market cap last year. How do they get it back?

In 2007, the top Wall Street firms saw some $400 billion worth of market capitalization evaporate, largely the result of concerns related to credit market problems. Now, many of their most important and regular sources of income have been diminished dramatically, and this year the firms will be performing what amounts to Wall Street’s version of a high-wire act: trying to generate profits by making markets with far less capital.

The credit mess that mushroomed last summer is generally expected to linger into the first two quarters of 2008, and at the same time income from many business lines is expected to wither. For example, a bond industry trade group expects fixed-income issuance to drop by 15% this year, mostly because of the mortgage bond market problems, sapping an important well of capital for other advisory activities such as mergers and corporate lending.

Wall Street firms can also expect to see a drop in fees earned from mega-merger deals because the credit market flu has limited the size of M&A activity. Much of the 2008 merger business is expected to be relegated to middle-market companies — deals worth $500 million to $1 billion. At the same time, weakened equity markets could hurt the prospects of fees from IPOs. Factors such as the slope of the US yield curve will determine the level of activity in bonds and the US economy’s well-being may determine how many trading orders are made for company stocks.

As Charles Geisst, author of several books about the history of Wall Street and a business professor at Manhattan College, puts it, there is little cause for optimism on Wall Street in 2008. “It is going to be one of Wall Street’s worst years,” he says....MUCH MORE

HT: the NYT's DealBook blog.