Summary
US Investment bankers are going through what Canada did 20 years ago, albeit with far more fireworks. The "Investment Bank" model is being turned into a "Bank-owned" model. Will it bring better transparency and a better business model?
Analysis
The definite deals of Bear Stearns to JP Morgan Chase, Merrill Lynch to Bank Of America, and Lehman Brothers to Barclays Bank seem to signal a massive upheaval in the investment banking system in the US. Can Goldman Sachs, and Morgan Stanley be looking for banking suitors as well? This is very similar to the investment banking change seen in Canada in the 1980's, when Canada's big banks went shopping for investment banks to expand their customer base, and of course, profitability. Since that time, these investment banks now fall under the closer scrutiny of the banking sector overall, and hence, are more regulated and transparent. The main difference between Canada's change, and the US change is the level of upheaval to get it accomplished.
At the time Canada was not in any sort of financial crisis, and these firms went for a premium, instead of the bargains that are currently being had in the US. But with these purchases, may also come extra headaches for the banks, unless the investment banks "deals" can be reined in, so that this ugliness doesn't rear it's head down the road.
There will most likely be more corporate and government transparency, and this can only be good news for investors. No Canadian bank has ever been pushed to the edge due to the actions of it's investment banking units, basically due to the steady flows of deposits from customers in many forms.
Speaking from the Canadian experience, this will be the road to recovery for the US investment banks going forward.
