We have discussed before about the gradual disappearance of independent investment banking firms. With the repeal Glass Steagall back in the 1990s, the day of investment banking firms not owned by commercial banks are increasingly numbered. Why? Because commercial banks have natural advantages, including lower cost funding sources and the perceived safety of the Federal Reserve Board. The topic can (and the prediction) can be examined in greater detail in the piece, The "Great Fall": The Consequences of Repealing the Glass-Steagall Act.
Let us recap. At the beginning of this financial crisis, there were six, Goldman Sachs, Merrill Lynch, Credit Suisse First Boston, Bear Stearns, Morgan Stanley, and Lehman Brothers. Bear Stearns is gone, absorbed by JP Morgan. Merrill considered offering itself to Wachovia, although ultimately the board stopped the overtures. The death watch is focused on Lehman, the smallest of the survivors. The WSJ has indicated that the market is girding for an announcement from the diminutive firm that it will have losses for the quarter of $1.8 billion, with the total for the year exceeding profists in fiscal 2007. The article indicated that, if the losses continue, Lehman may need additional capital.
The firm has so far managed to raise sufficient capital and stave off a Bear Stearns type run. At the same time, however, the market will not, indefinitely, be so forgiving. If that occurs, Lehman may find itself in bankruptcy or being purchased by a better capitalized savior. The most likely acquisition candidate? A large commercial bank, although finding one not so embroiled in the subprime problem that can absorb the investment bank is not easy. Whatever number survives this current financial downturn and remains independent, it is only a matter of time before that independence is lost.