(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Antony Currie
NEW YORK, Jan 2 (Reuters Breakingviews) - Lehman Brothers
could be the Humpty Dumpty of 2013. It’s not quite as crazy an
idea as it sounds. The defunct firm's two biggest operating
businesses – both snapped up by rivals in 2008 – could be up for
grabs in the next 12 months. Stitching the old firm back
together could be an enticing project.
Nomura (8604.T) has struggled since taking on Lehman's
European and Asian operations - although cost-cutting helped the
investment bank return to profitability in the three months to
September. If the outlook doesn't improve, pressure will mount
on the Japanese bank to call it quits. Meanwhile, Barclays
(BARC.L) may offload the U.S. business, which it scooped from
Lehman's rubble, as part of scaling back its trading and
corporate finance unit.
There are no obvious buyers. European firms are shrinking.
Wells Fargo (WFC.N), America’s fourth-largest bank by assets,
might see Barclays' retreat as a way to establish itself on Wall
Street. But investment banking is not its core strength, and
would probably prompt regulators to designate Wells as
systemically important, which would require it to hold more
So why not put the two homeless divisions back together? The
challenge would appeal to sidelined investment banking
executives like Jes Staley, who was recently booted upstairs at
JPMorgan’s (JPM.N) investment bank, or his predecessor, Bill
Winters. Even Goldman Sachs’ (GS.N) second-in-command Gary Cohn
might fancy a crack.
The overwhelming obstacle would be funding the new beast.
Bondholders would probably want a new Lehman to maintain a much
higher common equity ratio than the 8 percent or so held by
Goldman and Morgan Stanley (MS.N). And those two are already
failing to generate decent returns for shareholders.
That would probably scupper any attempts to put all the
pieces back together again as a public firm. A smaller boutique
focused just on advisory might have more luck. Recreating a
private partnership, where senior executives have real skin in
the game, might make investors and counterparties more
The quandary highlights investment banking’s problem in a
nutshell: if you're not already a dominant player, why bother?
UBS UBSN.VX has already quit much of its fixed-income trading.
The struggle of tackling Lehman’s possible Humpty Dumpty status
suggests others may soon have to follow.
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(Editing by Peter Thal Larsen and Martin Langfield)
Keywords: BREAKINGVIEWS LEHMAN/
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