Thank you for sharing!

Your article was successfully shared with the contacts you provided.

NEW YORK CITY-The turmoil in the US’s financial system, precipitated by the bankruptcy of Lehman Brothers, and the purchase of Merrill Lynch by Bank of America, clearly will send aftershocks throughout the economy. However, sources say with negatives such as an even tighter credit market, higher spreads and stagnant capital markets, sometimes, disruptions like these can create opportunity.

An anonymous industry source tells GlobeSt.com that although the positives are hard to see with significant job loss, “I think well capitalized regional and super-regional investment banks will pick up some of the slack in terms of services provided.” The source notes that although it is not good for the investment banking industry, it is “probably necessary, but a net negative.”

According to the latest Commercial Real Estate Outlook of the National Association of Realtors, commercial real estate is being pinched by Wall Street woes. Patricia Nooney, chair of the Realtors Commercial Alliance Committee, says that “we are in an unusual situation where transactions are being curtailed not for lack of demand, but for serious challenges in obtaining financing.”

Don Secunda, a local attorney with Weber Law Group, agrees that the crisis is no longer just an issue of the US financial markets, but tells GlobeSt.com that the world economy is feeling the fallout. “Bank of England and the ECB already have injected billions of dollars into the markets in an attempt to shore up the industry.” He warns that “if you think that credit was tight before, banks will be even more risk-averse making it tougher to obtain mortgages. The refusal of the Fed to assist Lehman is a clear indication that banks no longer can bully the government.”

Robert Knakal agrees with Secunda that in the short term, Lehman’s Chapter 11 filing and its repercussions, could lead to an even tighter credit, higher spreads and stagnant capital markets as commercial and investment banks try to preserve capital and limit their exposure. “Notwithstanding this effect, given higher spreads, we expect banks with capital to find commercial real estate investments attractive given how selective they can be and the conservative loan to value ratios they can dictate.”

As for questions surrounding Bank of America’s purchase of Merrill Lynch, Knakal tells GlobeSt.com that it “removes more uncertainty about their fate. AIG, Washington Mutual, and a host of others need stabilization also,” he says. “It is unlikely the Fed will step in again unless, as in the case of Bear Stearns, systemic risk is anticipated. The Fed had to step in to structure the Bear deal due to the fragility of the market at that point. Intervention with regard to Fannie and Freddie was also unavoidable. Clearly, the Fed’s expansion of short-term lending facilities demonstrated that, while they would not endorse another bailout, they are committed to ensuring broader market stability.”

As far as the government stepping in to help Bear Stearns, Fannie Mae and Freddie Mac and AIG, but not Lehman Brothers, the anonymous industry source tells GlobeSt.com “the government needs to think carefully about how they put taxpayer money at risk.” The source continues to note that Bear Stearns was earlier in the crisis and Fannie Mae and Freddie Mac are much larger than Lehman. “There’s no precedent set, which is probably good.” The source further notes that Merrill Lynch may have seen the way to ensure survival, and that was “to sell before they got put in a box like Bear Stearns or Lehman.

Another anonymous industry source expresses surprise regarding how quickly Bank of America turned its attention from Lehman to Merrill Lynch. “Obviously they were looking at both institutions,” the source says. “It is probably a good move because Merrill does not seem to have been as deeply affected as Lehman throughout all of this. This [the BofA, Merrill deal] gives Bank of America the foothold on Wall Street that it has sought for years.”

Although recent news has indicated that Goldman Sachs and Morgan Stanley could be next up as far as troubled banks who are slipping–as Morgan Stanley shares fell 26% in afternoon trade Wednesday–the anonymous industry source says that Washington Mutual is in trouble and the only question at this point is whether or not the government can allow it to fail. “A failure of an institution that large could have a very negative effect on public perception.”

The source continues that “the problem is that there doesn’t seem to be a lot Fishman [Alan Fishman, WaMu's CEO] can do to dress up WaMu–all the steps have been taken already. If they cannot find a buyer–and why should they be able to right now, given their issues and the issues at the handful of institutions that might be otherwise able to buy them–it is conceivable that they are next.”

Since publication deadline, deal talks have started spreading between WaMu and Morgan Stanley, with reports that WaMu is up for sale, and Wachovia may be in talks to buy Morgan Stanley.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.