Wall Street Culture unlikely to change

Note that many of the big trading firms are doing quite well during all this turmoil. There seems to be no sign that a stricter regulatory regime is in the offing so taking risks and greed will not be prevented from causing the same problems in the future.

http://biz.yahoo.com/ap/080322/wall_main.html?.v=3


Wall Street Culture Not Likely to Change

NEW YORK (AP) -- Wall Street investment bankers got
another lesson about the dangers of risk-taking this
past week with the downfall of Bear Stearns Cos. The
question now obviously is, how long will it last?

Those bankers, many of whom lived through market
debacles like the dot-com bust at the start of this
decade, turned out to have very short memories. And so
analysts believe the sale of Bear Stearns to JPMorgan
Chase & Co. for a stunning $2 per share ultimately
won't have that much of an impact on how Wall Street
conducts business.

In fact, bankers and traders are under even more
pressure to reap big returns because of the ongoing
credit crisis, and risk is just part of the game.

"There's an old saying on Wall Street that, for
traders and bankers, you'd have to take a normal 30
year career and distill it to 15 years," said Quincy
Krosby, chief investment strategist for The Hartford.
"This whole episode might change Wall Street for a
little while."

Krosby believes that Bear Stearns' near-collapse,
which followed the company's investing too heavily in
risky mortgage-backed securities, might force some
bankers to change their ways in the short term. But it
won't be enough to temper the financial industry's
relentless pursuit of money.

Indeed, the past decade has seen a number of investing
fiascoes that Wall Street doesn't appear to have
learned much from. Krosby noted the go-go Internet
days - when untested high-tech companies reaped piles
of cash in public offerings. The lesson then was,
don't put a lot of money into a venture that isn't on
fairly solid ground - but mortgages granted to people
with poor credit are quite akin to high-tech firms
that had never turned a profit. In both cases,
investors gleefully looked past the risk.

Now investors are smarting from what happened to Bear
Stearns. And traders are somewhat chastened, for now.

Erin Callan, the chief financial officer for Lehman
Brothers Holdings Inc., said her firm has certainly
become more wary about the risks it takes amid the
credit crisis. However, the market's gyrations also
offer Lehman's army of traders an opportunity to make
money.

"We just try to come in, and run the business the best
way we can," she said. "But, you can't survive if you
take no risks at all. All we can do is plan in this
environment, making sure we do all the things to
optimize running the firm."

It seems there's little that will change an industry
and a lifestyle attached to Wall Street, which is
thought of by Americans as more than just the center
of free-market capitalism. Its culture attracts men
and women with a swashbuckling mentality - smart,
aggressive risk takers with the potential to become
very rich.

And, their skills in trading and investment banking
were proven this past week - even after news of Bear
Stearns' buyout.

Chief executives at Morgan Stanley, Goldman Sachs
Group Inc., and Lehman Brothers pointed out that
trading desks played a big part in offsetting massive
mortgage-backed asset write-downs, which have ticked
past $156 billion for global banks since last year.

As the three companies released first-quarter earnings
data, Morgan Stanley said equity trading revenue
surged 51 percent to $3.3 billion. Revenue at its
fixed-income sales and trading group dropped 15
percent to $2.9 billion, but it was still the firm's
second-highest performance ever despite having to
write down $2.3 billion linked to subprime mortgages
and leveraged loans.

And that pleased investors. Morgan Stanley had its
largest gain in more than a decade on Wednesday,
climbing 18.8 percent to $42.86. Rival investment
banks also had their best week since 2001.

But, investors shouldn't get too comfortable - the
investment banking industry, and Wall Street in
general, still have a long way to go before they can
be called healthy. It's not just the credit market
problems that are an issue, it's also the struggling
U.S. economy and its potential to hurt other
countries.

"Until we feel more certain about the worldwide
economies, we don't see things picking up
dramatically," said Goldman Sachs CFO David Viniar.
"We just need to keep plugging away."