Friday, November 2, 2012

Discussion Topic 11/02/2012


  1. Glenn:
    One consequence of economic and financial instability is that a lot of professionals working in financial services are laid off in various times throughout the year. During the "good years", firms are competing heavily over the top graduates, but during the "lead years", a lot of very talented, hard-working individuals may find themselves unemployed. Wells Fargo is taking an advantage of this situation; since the supply of candidates with experience is greater than the the demand for them, WF can pick the cream of the crop as they expand. If Wells Fargo is expanding, one would think that they know what they are doing, and this is not a random initiative. This may signal that we have already hit the bottom of the trough, and WF believes that it can position itself to take advantage of the growth during a recovery cycle.

  2. Mengyao Kong:
    Personally, I think it is a great chance for Wells Fargo to expand their investment banking unit. At this time, Wells Fargo could get the employees who they cannot get at such a lower cost because everyone is panicking about the market and laid off their employees. I think this also part of the reason why Carey was founded at the time melt down. Also, expanding at this time makes Wells Fargo very brave and perspicacious if they could make profit. The whole market is at a trough time. The economy is struggling. It is really hard to make a huge profit at this time, but also it is hard to lose a lot at this time.
    For Wells Fargo, a traditional commercial bank, also faced a strict regulation from the Act, since all the business profit is shrinking, it is very smart idea to enter the market that is profitable however temporary crunchy. The Wells Fargo article also reminds me that lots of Chinese investment banking came to US to recruit experienced employees after financial crisis at a cheaper cost and THE MOST IMPORTANT thing is that these experienced employees won’t even consider the job.

  3. Xiao Zhong:
    The new move by Wells Fargo may prove to be a wise decision for some people who believe that the recent regulatory upheavals are compelling the company to turn to investment banking to stimulate growth. The Dodd–Frank Wall Street Reform and Consumer Protection Act by the Obama Administration posed more strict regulations on financial institutions, further restricting their business expansion. Thus, at this point, it seems reasonable and smart for Wells Fargo to enter into a new area to increase their business.

    However, there are some others who may be wary of Wells Fargo’s delving into IB. The move might prove costly for the company especially in the current tough situation when the overall economy is still slowly recovering. Further,WF should be prepared to deal with constant problems under the sluggish macroeconomic environment such as a limit in new business growth.

    In terms of mixed operation in banking, generally I think it is good as long as potential risks especially the risk of insider trading are well controlled. It allows for pooling and sharing of the bank’s resouces and helps achieve economies of scope.

  4. Tian Tan:
    Wells Fargo, another winner in Financial crisis. It merged Wachovia with very low price. The president of Wachovia, the forth largest commercial bank at that time, was Robert Steel who served as vice minister of Treasury. After the breakout of financial crisis, Wachovia had huge loss due to holding huge amount of bad subprime loan portfolio and Steel sold his bank to Wells Fargo under the coordination of Henry Paulson, the Minister of Treasury back then.

    There is no absolute good or bad for commercial banks to operate in investment banking industry. Strong banks like JP Morgan with such excellent risk management lost 2 billion in Credit Default Swap trading this year. But I believe one thing is true, as you are such a big bank, you are too big to fail. If you are in trouble, government will bail you out. For now, they say they will focus on IBD, but trust me, they will start trading billions of money as they just built such a big trading floor. Sales and Trading is still the money machine in Wallstreet.

  5. Pian Li
    As the 4th bank in US with a history of a century, Wells Fargo's action must has its own reasons. From Well's view, since its investment banking accounts for a very small part of its operations, there must be chances for it increase profits. The problem is how many profits this new section is gonna bring to the bank. Now the economy has now rebounded, so we can not give a clear answer for it. But as long as the bank can find a proper target customers and create special financial products, it can always account for a large part of the market.

    Actually, in China, the mixed operation does not happen in commercial banks. Especially IB, it is seperated from the banks. The reason of this is due to the government regulation. However, generally speaking ,most of the analysts and experts all regard the trend of mixed operation in Chinese banks. The fact is now more and more mid-sized and small size banks are entering funds, stocks, etc. This means the trend for mixed operation is a must in the future, at least in China.

  6. Tim Shoji:
    As an outsider, it is difficult to assess the wisdom of Wells Fargo getting into investment banking. The economy will always need investment banking services, but it's hard to tell exactly how much the market demands. Based on the worldwide de-leveraging and the subsequent downsizing of investment banks in the last few years, we can safely assume that there was excess supply of investment banking services in the market. Coupled with the fact that UBS is currently laying off some 10,000 employees, I think signs still point toward an uphill battle for he investment banking industry in the near future. My guess is that Wells Fargo is intending on offering IB services to a niche their existing customers that don't normally have strong relationships with traditional Wall Street firms.
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  7. Amine Bensaid:
    I think that Wells Fargo move to expand its IBD came at the right time. While it true that the trading part of IB is losing thousands of jobs at the moment (i.e. UBS will cut 10,000 jobs mostly at the trading floors), it seems to me that Investment Banks want to reduce the speculation factors in their division to avoid big loses. That said, successful IBs embrace all of the division they have and take advantage of the potential gains they can bring to them. For example, Goldman Sachs trading division has been very successful in the past, even when the markets crashed the bank received billions in profits. The main reason for that is because they have talented people who have the required experience to make the right calls at the right time.

    Wells Fargo is a solid bank that had consistent good returns throughout the years following the last financial crisis. There is not doubt in my mind that they will be very careful in their investing strategies, and will not make the same mistakes as other IBs have done in the past. I am also confident that they will invest the bank's money in the capital market rather than the customers, which is always a good sign to clients because they do not have to fear that their assets will be in jeopardy.

  8. Zhishuo Zhang:
    It is a good deal in term of acquiring Wachovia, but I still think it is a risky move to expand IBD. The logic behind the expansion is that the economy is about to take off. However, it is not necessary the case, and that is the reason why other banks retreat. Investment banking is certainly a profitable business, and the cost of the labor is currently in the low level, but will it be lower? Will the low cost compensate the risk? I think I can't give positive answer to these questions. I agree with Tim that there is excess supply of investment bank. Companies areall now seeking alternative way to raise capital.

    Thinking in another way, maybe WF wants to gain experience and better prepare themselves in this area when the cost is low and damage is not obvious compared to others, so that they can compete with others when there are actual opportunities.