An Overview On The Investment Services Industry

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is commonly referred as the Dodd-Frank Act. This act was passed as a response to the Great Recession in order to prevent potential financial debacle in the future. This regulation has a significant impact on American financial services industry by placing major changes on the financial regulation and agencies since the Great Depression. This paper examines the history and impact of Dodd-Frank Act on American financial services industry.

This is where the housing market comes in. The price of housing was seen as always rising. Potential home owners would save for a down payment, then contact a mortgage broker. The mortgage broker would then put the potential home buyer with a mortgage lender, giving the mortgage broker a commission. Now, the mortgage lender need liquidity to be able to keep giving out the mortgages. Lucky for them, investment bankers are there to buy the mortgages, giving the mortgage lender the liquidity to loan to more home buyers, giving the mortgage brokers more commissions, and putting people in more

The years 2008 shined a light on a group of people who were considered high society. When the stock market crashed in September 2008, the world shines a spotlight on the financial corporation. Words such as hedge fund manager and financial instrument such as credit default swaps are not words not known to everyday citizens. The economic downturn forced society to ask question not normally asked.

For this pre-crisis intelligence project, I examined JPMorgan Chase and the banking and financial services industry to identify warning signs of crises that could seriously impact its business. The banking industry is bouncing back after the financial crisis of 2007-2008. However, recent drop in oil prices, developments in the Chinese economy, and promises made by a presidential candidate, are all key potential risk factors for JPMorgan Chase.

Until Lehman Brothers failed during my junior year of college, I had had little exposure to the financial world. As I read about the financial crisis in the news, however, my lack of understanding made me uncomfortable. I didn't know what Fannie Mae or Bear Stearns did, or how they contributed to the crisis, but I felt the impact these institutions had on society. Determined to learn more about them, I decided to join an investment bank after graduation.

It is widely believed that the 2008 financial crisis finds its roots in the greed of fat cat Wall Street bankers but, in fact, the crisis finds its origins in a myriad of different inputs. Just like a financial portfolio, the 2008 financial crisis was the work of years of diversified sources. This “perfect storm” so to speak struck Wall Street in the fall of 2008 the Dow Jones

Longtime stalwarts of the nation’s financial services industry that fell victim to that turmoil included Bear Stearns, Lehman Brothers, and Merrill Lynch.

In 2007, the bursting of the housing bubble of the U.S was at its peak. The bursting resulted in plummeting of security values tied to the U.S. real estate pricing. The complex interplay of policies that provided easier lending of loans, overpricing of sub-prime mortgages, on a theoretical basis that the prices would continue to increase, and inadequate capital holdings from insurance companies and banks to back their financial commitments contributed to the bursting of the bubble (Boatright, 2010). During 2008, securities suffered huge losses due to

The investment banks, and subsequent stock brokerage firms, was regulated by the Security and Exchange Commission. The banking entities, in this portion of the financial sector, were used to dealing in high risk business that were structured on the business’ equity and debt capital, instead of the commercial banks’ deposits of customers. The activities in this sector of the financial system were underwriting stocks and bonds, insurance markets, the investments in subprime debt markets and mortgages.

The ‘sub-prime’ crisis triggered by the meltdown of the US mortgage backed-securities market in 2007 was a precursor to the global financial crisis. It would drastically change the competitive landscape for all firms in the financial services sector, including Campbell and Bailyn (C&B), one of the world’s five largest investment banks.

At the height of the 2008 financial crisis, Mr. Lawrence G. McDonald wrote a book on the fall of Lehman Brothers, entitled "A Colossal Failure of Common Sense." This book is a risk manager 's guide to the right and wrong moves on Wall St., and explains why investors must stay ahead of policies coming out

They have a global structure to ensure satisfaction with strategic and financing needs of clients around the world. In the institutional client services segment they facilitate client transactions and make markets in fixed income, equity, currency and commodity products—primarily with institutional clients (GS). In addition to this they make markets and clear client transactions on major stock options and futures exchanges worldwide, provide financing, securities lending and prime brokerage services (GS). Although revenues from these activities are decreasing it is still by far the greatest source of their revenue (GS).

Due to the consequences of the recent financial crisis, the company has observed a significant decline in the investment activities of its clients all over the world. These consequences brought negative impacts to its financial performance.

Normally, the underwriter’s agreement can come in two basic forms: Firm Commitment and Best Efforts. Using a Firm Commitment arrangement the investment bank will acquire all the new shares from the issuing firm and then be responsible to market it to the public. The compensation for the investment bank is the spread between their purchase price and public offering price. Using this method, the investment bank undertakes the full risk of not being able to sell all the shares at the determined price. By the best effort arrangement, the investment bank assists the issuing firm to sell their shares. The investment bank serves as an intermediary between the potential investors and the issuing

In 1994, Richard S. Fuld took control of Lehman Brothers as its Chief Executive Officer (CEO). Under Fuld’s aggressive leadership, the company flourished and became one of the largest investment banks in the United States. （Crossley-Holland 2009) reported that in 1994, each Lehman Brothers stock was averaging at $4 and by 2007 it catapulted to $82 creating a 20 fold increase. From 1994, Lehman Brothers gradually adopted an aggressive growth business strategy by expanding into highly complex and risky products such as Credit Default Swaps (CDS) and Mortgage-Backed Securities (MBS). By 2007, Lehman Brothers was the biggest underwriter of mortgage-backed securities of the U.S. real estate market.