SwarmPoint

With Lehman and Merrill Lynch joining Bear as past proud names of Wall Street, and contracting their businesses, it is apparent that there is a significant contracting of US institutional finance. The government financed support of Fannie Mae and Freddie Mac resulted in the government financing of over half of the US mortgage business. The next two largest players in the mortgage market were Lehman and Merrill Lynch. For scale it is worth noting that the amount of debt held by just Fannie Mae and Freddie Mac was greater than the total value of the UK economy.

There are now only two remaining independent US investment banks. Goldman Sachs and Morgan Stanley. This will hurt the US economy significantly because when investment banking services operate within a retail banking group they are subject to severely constrained risk limitations.

The remaining global investment banking players are: Goldman Sachs, Morgan Stanley, Citibank, Deutsche Bank, UBS, Bank of America (With Merrill), Credit Suisse and Nomura.

Unfortunately there will inevitably be a contraction for those who provide services to Merrill Lynch,  Lehman and Bear Stearns as the consolidation of everything from custodial services to data contracts will result in greater bulk pricing and fewer relationships. This is likely to further effect the custodian banks though with less dramatic exposures as it is a pure service model and not an investment exposure.

There will also inevitably be a knock on effect to portfolios as there has now been a significant loss of market value for the US financial sector.

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Finance contraction, economy, lehman, merrill lynch