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Seeking the new model

It's been a long time since the chief executives of financial institutions faced anything like this degree of uncertainty - over the global economy, the direction of financial markets and the very future of the banking and investment banking business.

Investors obstinately refuse to return to the IPO market: witness the string of public market disposals out of private-equity portfolios that have been pulled or shrunk in the past few weeks. M&A volumes remain anaemic. Enron-related accounting concerns have hit that business particularly hard. No chief executive wants to look an idiot by buying a company and then finding huge hidden contingent liabilities.

In any case there doesn't seem to be much urgency to buy right now.Sure, targets are cheap,but so are acquirers' shares.Corporates buy when they're confident and when their own shares are rising. Neither applies now.

Debt markets have become prone to extraordinary volatility.Analysts will argue that we are at or close to the bottom of the credit cycle. That's precious little comfort to bond investors who suddenly find billions of dollars being wiped of the value of their holdings, as happened to owners of WorldCom bonds, by a sudden lurch down in credit ratings.

That 's the kind of volatility normally associated with technology stocks. And uncertainty in the debt markets quickly feeds to uncertainty in equities, which have given back most of the moderate gains recorded in the fourth quarter of last year and early in 2002.

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