Midday (Hong Kong time) on Tuesday, we sent out a short poll to our e-mail base of readers. We kept the poll open for three hours and 691 readers responded to our queries. The measured responses indicated to us that people want to share their views on the state of the market.
An overwhelming 72.5% think that Bank of America has made a good decision to buy Merrill Lynch. This supports the view that buying the 94-year old iconic investment bank and wealth manager is a whole lot easier than trying to build a franchise from scratch. It also shores up the opinion that the deal, which was initiated on Saturday by Merrill's chief executive John Thain, was a savvy one to float.
A majority of our readers, 54.6%, think the Merrill takeover could finally make Bank of America a force in the investment banking world. Such a response indicates that Bank of America picked the right brand, but of course key to the brand are the people that have built it. The trick for Bank of America will be to retain the dealmakers who can continue to deliver business.
Turning our attention to Lehman, again, 79% of respondents think the Federal Reserve made the right decision in not bailing out the firm as market forces should prevail. The remainder say that the Fed's lack of action could cause a systemic implosion. We'd note, however, that the market-force theory is one which is easier to apply when it's not your firm struggling, and further, that the views of our readers probably differ considerably from the views among small investors in the US and across global markets.
In terms of explaining what happened at Lehman, 49.8% of our readers took the view that Lehman's management should have raised capital earlier, while 23.7% argued that most of the blame for the failure of the bank lies with Lehman's board, which perhaps should have been more diligent in controlling the management's actions. However, 27.2% felt that the environment, which created a reward system for taking untenable risks, was the main culprit. The regulators were largely viewed as being the least responsible.
Not surprisingly, 80.8% of our readers think that there is still room for standalone investment banks. We say this comes as no shock because many of our readers are investment bankers or former investment bankers (at standalone firms or at IB divisions within larger entities). But this answer also tallies up because it's quite clear that the problems playing out in the market are not exclusive to standalone investment banks. They are showing up in a range of businesses and are indicative of problems such as the stacking up of too many assets in one class and changes in market conditions, or come down to risk management.
Finally, very few of our readers expect the regulators will step in to prevent a Chapter 11 filing from another investment bank.
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