Investment Banking in 2008 (B)

Abstract

Publisher Summary On April 6, 1998, Citicorp announced its plans for the largest corporate merger in history by joining with the Travelers Group. The $70 billion deal would merge America's second-largest commercial bank with a sprawling financial conglomerate offering banking, insurance, and brokerage services. The proposed transaction violated portions of 1933's Glass-Steagall Act, part of sweeping securities and banking regulations enacted in the wake of the Great Depression. Citigroup successfully obtained a temporary waiver for its violation of the Act, completed the merger, and then intensified the decades-old effort to repeal Glass-Steagall. Inspired by a desire to make U.S. investment banks competitive with foreign deposit-taking investment banks such as UBS, Deutsche Bank, and Credit Suisse First Boston, a Republican Congress and President Clinton passed the Gramm-Leach-Bliley Financial Services Modernization Act in 1999, permitting insurance companies, investment banks, and commercial banks to compete on equal footing across products and markets. The subsequent Commodity Futures Modernization Act of 2000 further deregulated the industry by weakening regulatory control over futures contracts and credit default swaps. Both liberated and revolutionized, the banking industry embarked upon a decade of acquisitions that concentrated the world's financial power in fewer and fewer hands. Acquisitions of investment banks by commercial banks became commonplace, with FleetBoston buying Robertson Stephens, Bank of America buying Montgomery Securities, Chase Manhattan buying JP Morgan (and the combined entity JPMorgan Chase acquiring Bank One and, later, Bear Stearns), PNC Bank purchasing Harris Williams, Orix buying a controlling interest in Houlihan Lokey, and Wells Fargo buying Barrington. As international banking barriers fell and the global markets grew less segmented, the drive for consolidation accelerated, spurred on by the apparent success of the “universal bank” model.