Financial Market Storm Continues: Securities Firms are now Banks

Just last week I blogged that securities firms were not on the client list of collection agencies or even debt buyers.  Because of the Lehman bankruptcy and the sale of Merrill and Bear, I thought they never would be.

That was until this week.  The Feds changed the rules, making it possible for the securities firms that survived as stand-alone firms to make their way onto the client list of ARM service providers and debt buyers.  Over the past few days, the Feds transformed securities firms into bank holding companies, thus ending the era of the independent securities firms that dominated Wall Street for decades. 

The Feds also loosened the rules to encourage buyout firms and private investors to take significant stakes in commercial banks.  Adding fuel to the fire, Wilbur Ross, founder of private equity firm WL Ross & Co LLC, was quoted on his site and CNBC that he expects as many as a thousand U.S. bank closures in the coming months.

What does all this change mean for the ARM industry?  The client base in the banking sector is certain to change, especially among those that service local thrifts and larger mid-size regional banks.  I venture to say that we will see at least one securities firm in Goldman survive as a stand-alone firm (possibly Morgan Stanley but they might be too far down the road with Wachovia to turn back) and become very active in acquiring banks that take deposits and make loans. We will also see a flurry of acquisition activity among buyout firms and even larger commercial banks, particularly taking advantage of lower prices in the market. 

Goldman and many private equity firms are not known for doing things on a small scale, so their moves will undoubtedly result in them emerging on the “who’s who” list of clients of ARM companies.  As a result, some top-performing agencies and debt buyers will be the recipient of a significant amount of new business in the form of increased placements or purchase opportunities. Others might not be so fortunate.  As always, the best thing to do is talk to your clients and prospects so that you can stay in front of the coming changes.