Wednesday, September 17, 2008

Are two independent global investment banks enough?

Now that we have only two independent global investment banks (IGIBs) in the world, how can that be considered enough? Will politicians and regulators call for the breakup of these two, or the creation of at least a few more?

To examine the possibilities, let's look at a field that has a parallel: accountancy and audit (A&A) firms , of which there are only four. And four global A&A firms are usually not considered sufficient to maintain healthy competition.

They themselves seem to be perfectly happy with the existing situation though even they might welcome more firms in the field if only because that would fend off criticisms of oligopoly. But no one is rushing to create a fifth one, given that such an enterprise would probably cost billions (and it is not clear that there is enough talent in the world to create a fifth such giant without emasculating the existing four).

Ah! I can hear the exclamation from my analyst friends who follow the financial sector. There is a huge difference between A&As and IGIBs. The latter don't need anything like the infrastructure that A&A firms do - and there is plenty of investment banking talent available in the market at present.

Moreover, new IGIBs could be created by legislators seeking to break up other conglomerates if the Glass/Steagall act (or some version of it) is brought back - as it may well be, given that any rational analysis shows that the repeal of the Glass/Stegall Act was at least one key contributor to the current crisis.

So is a season of fun and games ahead for the M&A industry? Sphere: Related Content

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