Archive for May 26th, 2008

Investment Banking Acquisitions and Consolidation

Posted on Monday, 26 May 2008. Filed under: Commentary, Mergers |

When companies are down and out, they become acquisition candidates, of course.  Who better at this time than investment banks?  The share prices of all investment banks – even those who were less impacted by the credit crisis – are much lower than last summer, and continue to be very volatile. 

Does this make them attractive acquisition candidates?  It shouldn’t – at least to firms from outside the industry.  (And if a non-banking company did consider entering investment banking now, wouldn’t you just wish you could listen when the independent non-executive directors asked  ‘why would we want to enter investment banking NOW and what how will our shareholders respond?’)

But how about industry consolidation?  Banks buying investment banks.  Investment banks buying each other or merging. 

Barclays missed out on ABN AMRO (and aren’t they happy about that!).  Deutsche Bank still isn’t enough of a bulge bracket firm to its liking – despite a strategy to achieve that status since it’s acquisition of Morgan Grenfell in 1989 almost 20 years ago and it’s acquisition of Bankers Trust / Alex Brown 10 years later. 

So I’m not talking here about companies buying INTO investment banking, but rather investment banks (or universal banks) buying other investment banks.  Stay tuned, but it may be starting.

See the reports first in Bloomberg on a possible Allianz (Dresdner Bank) / Commerzbank / Postbank merger.  Note the stories, first reported by The Daily Telegraph, that Bob Diamond at Barclays was interested in buying the investment banking parts of UBS or perhaps Lehman.

The big question I think is whether the large banks in China and India will want to get into this business.  They have been quietly building their domestic capabilities, but having been largely unaffected by the credit and liquidity market issues of the past ten or twelve months, they have a relatively greater ability to make a purchase than many American and European financial services firms.  Not sovereign wealth funds, but real banks.

Any comments welcome.  Who actually would be willing to buy into this industry?  Or who could be a consolidator?  Are Chinese banks ready yet for all the ‘fun’ of being global investment banks (with apologies to Ken Lewis of Bank of America who said last year that he’d had just about enough fun in investment banking, thank you)?

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