“I’m Trying to Stay Positive”: I-Bankers Speak Out
Though some people think the “fundamentals of our economy are strong,” a lot of people recognize the Dow’s dizzying 504 point fall yesterday for what it is: the latest development in a giant, evolving problem. In case you don’t read newspapers or talk to others: the bulge bracket investment bank Lehman Brothers collapsed over the weekend and is filing for bankruptcy; Merrill Lynch, another bulge bracket i-bank, has been bought by the Bank of America for around half its recent value; and AIG, a big insurance company, might just pull a Lehman.
Where does this leave our i-banking brethern?
Um, it depends on where they work.
One Ivy alum who is/was working as a Lehman analyst had this to say:
I didn’t get the official word until Sunday night.
I’m shocked and disappointed. I’m just trying to stay positive.
I’m out of a job at the end of the week but at least I’m young. I can pick up and come back. I feel sorry for the older guys who just lost a fortune.
Lehman analyst on Merrill Lynch:
I have friends over there. They don’t really know what’s going to happen. They just have to wait and see how and if they’re integrated into Bank of America.
Basically, it’s like what happens in mixed families, only some of the kids are going to be laid off and go back to grad school.
An Ivy alum working for an unnamed but major investment bank that is still standing had this to say:
Everyone’s a little afraid but my Managing Director says we’re comfortable. And if the market recovers the people who do survive are going to have a strong advantage.
On the subject of next year’s crop of Ivy interns and analysts, this banker says:
They’re fucked.
After the jump, this banker explains how bad things are going to get.
We’re in the beginning approaching the middle. We’re just getting to the juice.
An Ivy alum working at a boutique i-bank offers some insight:
Don’t have much time to write this, but basically what’s going on is the big independent brokerage firms are going down due to a combination of over-leverage (Lehman was levered up 30 to 1), illiquidity, a shrinking balance sheet, and the lack investor confidence. Banks that got tied up in the securitization of mortgages are getting hit hard as these derivatives are now priced 25 cents on the dollar due to defaults in the housing sector which also drives housing prices down. As we see the big brokerage firms break down these few weeks, the spotlight will be turned on the regional banks in the near future, as they hold lots of bad debt as capital. Also, the second wave of the credit market crash is coming in 2009 with the reset of Option ARMs with negative amortization. The CDS market of $62 trillion is also in dire straits. This crisis is definitely not over, it has just begun.
The recent boom in structured products, especially those backed by residential mortgages, has allowed Wall Street to prosper during the mid 2000s. Although there has been big ups and downs in the housing market in last century, there has never been a swing like this market conditions of over leverage and illiquidity.
It’s a scary time to be in right now. People are getting fired left and right. Greenspan has said that this is a once in a century crisis. This is starting to look like the 1929 depression.
And now, enjoy the rest of your day!
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