WSJ: Diversification aids Big Banks during market upheaval

by Erin McCune on September 6, 2007

in Banking

Today's WSJ explores the extent to which diversification has protected universal banks – with a broad spectrum of business lines and enormous balance sheets – from the upheaval caused by the collapse of the subprime mortgage market and the lack of liquidity in debt markets. The article focuses on the big three: Citigroup, JP Morgan Chase, and BofA.

"These banks rarely hit on all eight cylinders at the
same time, but they can make a pretty good profit on hitting on six out
of the eight,"
says Robert Maneri, a portfolio manager at KeyCorp's
Victory Capital Management in Cleveland.

They may be withstanding the turmoil relatively unscathed for now, but risk remain:

How the credit crunch can hurt universal banks:

  • Debt underwriting slows
  • Fewer mortgages to originate
  • Servicing defaulted mortgages is costly
  • Weaker markets hurt money-management units when investors sit on cash
  • Hedge-fund business loses its luster
  • Fewer mergers and leveraged buyouts

Read more:

Do-It-All Banks' Big Test
Universal Model So Far Weathers Credit Crunch,Remains Controversial

Wall Street Journal
September 6, 2007; Page C1

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