Investment Banking Mergers?

Posted on Wednesday, 21 November 2007. Filed under: Commentary, Mergers |

There’s been a lot of talk in the past few weeks about whether the so-called ‘credit crisis’ has weakened a number of investment banks so much that they are now likely targets.  Just look at Top Firms said to be Takeover Targets, for example from Here is the City.  That entry ponders the independent future of Morgan Stanley, Merrill Lynch, Lehman and Bear Stearns and quotes Bloomberg’s analyst Matthew Lynn.  Most likely acquirers, he says, are the large non-US banks such as HSBC, Santander, Deutsche and even China’s ICBC (Industrial & Commercial Bank of China) — all with market capitalisations well in excess of those four companies and with less exposure to the US credit problems that have plagued the US-based companies.

We think that such acquisitions are not likely — although acknowledging that Lehman and the Bear are always on everyone’s list of acquisitions for firms looking to gain exposure to that segment of the financial services industry.  (And in more normal times, those two firms always seem to have a small takeover premium built into their ‘normal’ share price.) 

Not that consolidation of the industry wouldn’t be intriguing at this point.  But rather than being acquired by a firm that would gain the upper hand because of recent events, why not consider a merger between some combination of those four firms.  Merrill Morgan Stanley or Morgan Stanley Merrill?  Stranger things have happened.  Would that both Johns (Thain and Mack) could be so creative.  At least it would allow the two companies to hide many of the sins of the recent past and would provide a formidable competitor.  It would also give the newly combined company the opportunity to divest divisions as well. 

Given the global nature of the business, it shouldn’t even be of too great concern to the competition authorities, although they are certain to protest.  By the way, the other possible names of such a combination (‘Morgan Merrill’ or ‘Merrill Morgan’) can’t be used, I understand, because of an agreement that goes back to the original break-up of John Pierpont (J.P.) Morgan’s empire in the early 1930’s that prohibits Morgan Stanley or any of its successors from using the ‘Morgan’ name without ‘Stanley’ to follow — a right reserved for the other major part of that former empire, JP Morgan. 

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2 Responses to “Investment Banking Mergers?”

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I hate to see they buyout of Citigroup by Abu Dhabi, if that’s what’s being proposed. I’m hopeful that Citibank’s change of leadership will lead to new practices. The NewsVisual article on Citigroup gives one hope for a turnaround, since it shows that Robert Rubin, the interim leader, has experience in both the private and public sectors. So it would be hard to replace him.

The NewsVisual article on the rumored merger of Citi and BofA suggests that common connections between the two banks’ Executives and Directors could make a deal workable.


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