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Extracting Jekyll from Hyde: A Status Update on the Efforts to Reorder Wall Street by S e a n C av e r ly & R a n da l l R ot h * M r . R ot h ’ s n a m e wa s n ot i n c l u d e d i n t h e p r i n t v e r s i o n d u e to a n e d i to r i a l m i s ta k e . W e a p o lo g i z e .

T

Bulge-bracket firms are faced with an

addiction to volatile trading operations

banks-cum-hedge

unsavory dilemma over the Paul Volcker

had caught hold as the means to prime

funds-cum-bank holding com-

championed proposal to banish major

the corporate earnings pump. However,

panies must ply a new trade, or at least

forms of proprietary investment. Should

if Wall Street attempts to argue that

find a new way to ply an old trade.

the industry collectively gather its nerve

scrutiny of principal investing activities

Having

he clarion call is out. Heretofore investment

legally

restyled

is

themselves

unwarranted

given

the

marginal

as ‘banks’ to gain access to the Fed

contribution that they make to revenues,

discount window and avoid the same

it risks begging the question of why it is

fate

Brothers,

expending so much effort fending off the

the last remnants of Wall Street’s

proposed regulation of businesses that

investment banking titans are now in

could be construed as rounding errors on

the midst of justifying the regulatory

the corporate income statement.

that

befell

Lehman

mirage that allows them to maintain

Upon closer inspection, the trading

the duality of a legal classification as a

activities of Old Wall Street are more

commercial bank while not engaging in

than the mere footnotes that banking

the deposit-taking and other activities

chieftains care to admit. Trading is the

that characterize such banks.

wellspring through which many of the other businesses flow.

The Obama Administration’s January

Whether agency-

21 proposal of a return to a Glass-Steagal

based brokerage, market-making and flow

environment would immediately call into

trading, or prop trading, other elements

question the basic business model and

in the portfolio such as M&A advisory,

organizational structure of many of Wall

new

Street’s leading firms.

Instead of the

management, to name but a few, all benefit

amalgamated institutions that dominated

from the one thing that a developed trading

issues

underwriting,

and

asset

operation captures most efficiently: market

the business from the time of Sandy Weill’s orchestrated tie-up of Citicorp and

and press its protestations to hiving off

information.

Travelers into a financial supermarket,

proprietary trading desks, internal hedge

are not so much purveyors of brokerage

the future may portend a return to

funds, and in-house private equity funds,

services

less vertically-integrated firms, if not a

it will raise the ire of an already hostile

services, capturing, contextualizing, and

complete return to pre-Gramm-Leach-

Congress. Moreover, the very attempt to

then disseminating trading ticks into

Bliley Act era divisions between broker-

shield these business lines would serve as

actionable investment information bits

dealers and commercial banks.

an implicit admission that an unhealthy

for clients and their own account. Hence,

8

S PRIN G 2 0 1 0

as

Top Wall Street houses they

are

of

information

International Business Review - Spring 2010  

The Spring 2010 edition of the IBR.

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