Will investment bank shake-up affect consumers?
"Merrill Lynch has a great franchise -- much more retail-oriented franchise -- than Bear Stearns or Lehman Brothers
had," says Ely. The key thing for BofA is to not screw things up at Merrill. They need to integrate and cross-sell very slowly and
deliberately so they don't destroy the strengths of Merrill in the process.
"But what really counts for the consumer is intense competition at the local level, and I don't see any of this impeding
that in any way."
Calming customer fears
Robert Ellis, senior vice president of the wealth management group at Celent, a financial services consulting firm, says retail firms
need to talk to customers and calm their fears.
"There's incredible uncertainty, and we have a downward stock market. It's only natural for people to be concerned. What
we're seeing is retail firms getting caught in the backwash of some of the bigger industry problems. We started with subprime, which led
to the credit crisis, and now that's leading to this huge situation with credit default swaps. We've seen one crisis after another. But
the problems are coming from a proprietary-trading, investment banking world. They're not coming from a wealth management retail-public
world. Unfortunately, most consumers don't understand the distinctions and so they get nervous."
In addition to these top tier institutions, many community banks are having financial difficulties, and a fair number of
them are expected to fail over the next couple of years. Ely says predictions of 150 to 200 community banks failing are probably overstated.
"Of the 11 banks that failed this year, maybe four or five were community banks. The failures this year, particularly the
bigger ones, were outliers within the banking industry. IndyMac was certainly not a community bank, nor was ANB Financial. Some of the
others may have been in the community bank-size range but they hardly acted like community banks. They were so concentrated in doing
construction lending and lending in lots of different markets, which to me is not a community bank."
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