[ccebook.cn]The World in 2010

Finance
The big boys' game
Nov 13th 2009
The bankers are ready to play, with stricter rules
After a near-death experience, the biggest banks in the West are breathing more easily. Life has been good to
the survivors of the global financial crisis, especially those who escaped state ownership; and it will get better
in 2010, despite tighter regulation and a blast of much-needed competition.
In 2010 we will witness the emergence of a banking super-league comprising Goldman Sachs, JPMorgan
Chase and Deutsche Bank. Each will have the liquidity and appetite to dominate capital markets. These toobig-to-fail
titans will be joined by Barclays, long seen as an accident-waiting-to-happen but now poised for a
comeback.
Barclays will reap the benefits of two audacious gambles made at the height of the financial crisis: the
purchase of the American operations of Lehman Brothers (if only Barclays had scooped up Asia, too); and the
decision to snub British state aid in favour of private investors, notably from the Gulf. An independent
Barclays, powered by its investment-banking arm, will command a place in the super-league, despite
weaknesses in its British loan-book exposed by a still-fragile economy.
Yet life for the super-leaguers will become tougher. In 2009 the leading “bulge-bracket” banks generated easy
profits (and handsome bonuses) buying and selling government bonds under central banks’ quantitative easing
(QE) and other stimulus measures. In 2010 these trades will fade away, just like QE itself. Regulation will
tighten, as higher capital requirements are put in place. Competition will return, too, in investment banking,
especially for talent.
After two years of convalescence, the walking wounded (Bank of America/Merrill Lynch, Citigroup and UBS)
will slowly be on the mend. They spent most of 2009 on the sidelines, as regulators fretted about their capital
ratios and dud assets. In 2010 the playing field will start to level out as lending recovers slowly and
investment banks are weaned off emergency life-support systems.
The return to quasi-normality will challenge upstart corporate brokers and small-cap investment bankers such
as Jefferies and London-based Evolution. In 2008-09 their growth (and staff) exploded as they sought to
exploit the gap left by the bigger investment-banking players. In 2010 competition will intensify in the credit
markets. “Someone is going to get hurt,” predicts one City of London chief executive. “This is a big boys’
game.”
But a semblance of normality will not mean a return to the spellbinding leverage of the credit bubble. The
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