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Why investment banks are still with us

The word once again in New York is that leading investment banks will have to subsume themselves in larger, commercial banking organizations or face loss of business. It's an old argument. And it's as wrong as it ever was.

Six years after Citigroup was formed, and almost four years after Chase bought JPMorgan and Bank of America started its push to build a big investment banking operation, Morgan Stanley, Lehman Brothers, Goldman Sachs and Merrill Lynch are still here. What's more, they have adapted well to the new competitors.

The ability to lend large amounts is no longer such an advantage for the commercial banks. First, all of the brokers are capable of lending to their clients and are willing to do so. Second, there is not so much desire or need to borrow. Syndicated lending volumes have risen in 2004 off multi-year lows but not sharply. Executives at the universal banks were predicting three years ago that corporates would remember how their banks helped them by lending to them when times were hard, and reward them with other, more lucrative financings, leaving the brokers in trouble.

It has not happened. Yes, the universal banks can point to examples where lending has got them in the door, and got them other business.

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