The profitable businesses of granting mortgages and investing in related derivatives is gone now. So are the large, profitable loans given to major corporations and the equity and debt underwriting that was part of owning a big investment banking operation.
The value of credit card portfolios is dropping and the loses from them are spiking up as consumers’ ability to pay loans hits a wall and unemployment rises.
The M&A business might still be OK. The value of company assets has dropped sharply, especially as the stock market has fallen. Some firms can be bought for 70% less than what the market said they were worth a year ago.
But, no such luck. Fear of a deepening recession and tight credit have killed the M&A market and it’s not likely to come back for years. According to the FT, in 2008 "Companies abandoned 1,309 transactions valued at a total of $911bn, according to Dealogic, the financial data provider."
So much for the idea that M&A can help bank earnings.
Douglas A. McIntyre
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