To paraphrase Mark Twain, the death of brokers has been greatly exaggerated. Yes, while the dirt was uncovered last year the mudslinging in Washington was at its zenith, the investment bankers hung around through the mess, and are poised for a giant comeback. Albeit smaller, leaner and more efficient. Accused of everything wrong with the economy and financial system, they have survived. Given the complexities and difficult situation from the financial mess last fall, it's a miracle they survived, even in this form. Let's take a look at the majors one by one:
Goldman Sachs (GS) - The King
It is hard to argue with performance. Goldman has truly put itself on another level. Oh sure, the rumors and conspiracy theories are there...Government Sachs, the tools for the Feds, etc. The pure fact is the stock is up 200% or more since the low last fall. They have transformed into the biggest player in bond trading and continue to have solid footing in investment banking. Funds have a huge advantage with Goldman, and that won't change anytime soon.
Morgan Stanley (MS) - Forever Research
On their deathbed after the Lehman collapse, Morgan Stanley resurrected itself with a very prudent investment from Mitsubishi. When it appeared nobody wanted to have anything to do with them, they took the investment and it has paid off in spades. But, what intrigues me is the purchase of Smith Barney from Citi. Without much fanfare, Morgan Stanley had become the best and most reliable research outfit on the 'street. No doubt the other services it provides are moneymakers, but this move put them well above the rest.
Amex Broker/Dealer Index (XBD) Daily Chart
Barclays (BCS) - Lehman Lives On
Barclays was a stodgy old British bank, just a lender and recipient of deposits, plain vanilla...that was before last fall, when they basically purchased all of Lehman for a song. With all its faults, let's not forget Lehman was THE premiere bond manager and had the best traders, and this part of the business was worth multiples over what Barclays paid for it. The research side and underwriting were as good as any on the street, too. Barclays got the business they needed and lacked, and while the mess is not over for Lehman, it's safe to say Barclays now has a huge footprint in iBanking.
JP Morgan (JPM) - The Bear Stearns Connection
They started it, and they are looking good now for it. Bear Stearns may have been the root cause of last fall's disaster, but JP Morgan came out smelling like a rose. The bought the venerable firm for pennies on the dollar, absorbed a small amount of risk guaranteed by the Feds and picked off some of the best talent on the street. The name Bear Stearns may be gone, but the talented underwriters and traders are still there and performing well, stoking the business for JP Morgan to compete in a challenging environment. Underwriting is key for this group, and secondaries/IPO's on the horizon will be the profit driver.
Bank of America (BAC) - Wealth Management and Merrill
The news surrounding BAC/Merrill is endless. Who knew what and when, what was wrong, etc. Regardless, the firm has survived. As you recall, Merrill was on life support following the Lehman folding, and was on the list as next likely victim. In fact, it's noted that BAC was more interested in Lehman rather than Merrill last fall. Mother Merrill did get a bid from BAC however, and it is a crown jewel. They continue to compete in underwriting and are the premiere wealth managers. They have lost their share of talent but continue to have some of the best on the street. Being part of BAC can only be a positive longer term.
Happy Trading!
Bob Lang
BigTrends.com
1-800-244-8736
