What Will Tomorrow's I-Banks Look Like?

The Wall Street model for investment banking is dead but there's a future for niche M&A advisory firms, says Alan "Ace" Greenberg, who built the modern Bear Stearns.

Investment banking can survive only if tethered to more stable businesses like retail or private banking, counters Walter Kielholz, the chairman of Credit Suisse Group.

The two leaders' contrasting views emerged in separate media interviews this week.

Greenberg told Bloomberg News that "There's no more Wall Street," and, "That model just doesn't work because it's at the mercy of rumors." He was referring to the kind of highly leveraged operations run by not only the doomed Bear Stearns and Lehman Brothers, but all the bulge-bracket institutions that relied on short-term financing from one another to maintain their positions. That system proved too vulnerable to market rumors that proved self-fulfilling, damaging every major institution's credit to a point where they were forced into shotgun weddings and government bailouts.

On the other hand, Greenberg saw hope for firms that specialize in advisory work on mergers and acquisitions. Such firms will continue in business as demand for independent opinions grow, he said.

Greenberg was Bear Stearns' chief executive from 1978 until 1993. He remains associated with its parent, JPMorgan, as vice chairman emeritus.

Meanwhile, Credit Suisse's Kielholz told the Zurich newspaper Finanz und Wirtschaft that his institution will remain active in investment banking after eliminating 5,300 jobs from that unit.

He then added: "Today there is no more question that investment banking in future will basically be conducted within universal banks, whether in combination with strong international retail banking or, in the case of Credit Suisse, with a global private banking (business)".