Tim Ryan, CEO of the Securities Industry and Financial Markets Association, expressed confidence in the ability of the finance sector to overcome its current crisis yesterday, despite persistent reports of further merger discussions between broker-dealers and other institutions.
Speaking at the Sibos banking conference in Vienna, Ryan applauded the response of regulators to the crisis. “Will the regulators coordinate? Are they making the right decisions? Regulators need to be bold and smart. And so far they have been,” he said.
Nevertheless, the turmoil in the financial markets has increased further, as adverse reaction to the third-quarter results of Morgan Stanley, the US broker-dealer, prompted speculation about its ability to remain independent. Shares in Morgan Stanley fell around 30% to $20.03 in New York yesterday, while rival Goldman Sachs dropped around 20% to $110.22. Morgan Stanley chief executive John Mack was widely reported to have received a call from US commercial bank Wachovia offering investment. Mack also held talks with Goldman Sachs CEO Lloyd Blankfein, Securities and Exchange Commission (SEC) chairman Christopher Cox and US Treasury secretary Hank Paulson to discuss measures to prevent short-selling activity from putting further pressure on the share prices of the US’s two remaining large broker-dealers. Morgan Stanley was reported to be holding discussions with Chinese investors by CNBC this morning.
The SEC’s new rules on short selling are being introduced this week. Rules to outlaw ‘naked’ short-selling – i.e. when traders sell stocks before buying them, then look to cover positions immediately afterwards – come in to force today. In addition, SEC chairman Cox has asked the commission to consider “on an emergency basis” a new disclosure rule that would require hedge funds and other large investors to disclose their short positions.
SIFMA’s Ryan told Sibos delegates that the current “serious challenge to all entities that depend on wholesale funding” meant that dramatic change to investment banking was inevitable. Already, only a handful of SIFMA’s 680+ members were specialist broker-dealers, said Ryan. “Most are part of multi-product line firms. Investment banking operations will continue to exist, but their funding and regulation will change,” he said.
A self-proclaimed “undertaker” to banks in the aftermath of the US savings and loans association crisis of the late 1980s, SIFMA’s Ryan was perhaps the most optimistic. Having sold $4 billion of savings and loans assets in four years as a regulator, Ryan asserted that, despite the continued knocks to market confidence, asset prices could be stabilised. “Right now, there’s a huge delta between the prices at which people are willing to buy and sell. Although it may need financing to enable firms to sell at market clearing prices, I believe it could be done within three years,” he said.