The Decline of Investment Banking: Preliminary Thoughts on the Evolution of the Industry 1996-2008

Journal of Business & Technology Law, Vol. 5, p. 75, 2010

University of Maryland Legal Studies Research Paper No. 2010-13

25 Pages Posted: 27 Apr 2010

See all articles by Robert J. Rhee

Robert J. Rhee

University of Florida Levin College of Law

Abstract

In this paper, I provide a basic, preliminary financial analysis of several prominent, independent investment banks: Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns. I provide the following data: (1) segmentation of net revenue by products and services, (2) return on average equity, (3) leverage ratio, and (4) debt to equity ratio. Although the data analysis here is very basic, it still tells an interesting narrative of the evolution of the investment banking industry. The investment banking industry has undergone significant change in the twelve-year period 1996 to 2008. In the mid-1990s, banks had a balance mix of the three major product lines: trading, asset management, and investment banking. In the past few years, trading has become the primary business activity of major investment banks. It has overshadowed the other two major products and services of full service firms, investment banking and asset management. In essence, the executives at these firms made “bet the company” type decisions through heavy reliance on trading and increased leverage to boost profitability. This is a new phenomenon. In fact investment banks had changed their business models. In hindsight, with a collapse of the housing and credit bubbles, pure investment banks were especially vulnerable in a way that they were not only a few years ago.

Keywords: Financial Industry, Banking, Finance

Suggested Citation

Rhee, Robert J., The Decline of Investment Banking: Preliminary Thoughts on the Evolution of the Industry 1996-2008. Journal of Business & Technology Law, Vol. 5, p. 75, 2010, University of Maryland Legal Studies Research Paper No. 2010-13, Available at SSRN: https://ssrn.com/abstract=1592466

Robert J. Rhee (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

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