Fallout: The Financial Crisis

Small firms pick up Wall Street slack

Amy Scott Mar 16, 2009
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Fallout: The Financial Crisis

Small firms pick up Wall Street slack

Amy Scott Mar 16, 2009
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TEXT OF STORY

Renita Jablonski: You could say the beginning of the end of Wall Street as we knew it began a year ago today. On this date last year, JP Morgan Chase bought Bear Stearns for a bargain. Today, none of the former top five investment banks is quite what it was. As Marketplace’s Amy Scott reports, smaller firms are seizing the opportunity.


Amy Scott: You’ve probably never heard of Pali Capital. Neither had Aviral Rai until last summer. But when his job at Bear Stearns disappeared, the boutique investment bank suddenly looked appealing. Pali is one of many small firms moving into the space vacated by big investment banks — and loading up on their talent.

Aviral Rai: It’s a huge growth opportunity for smaller firms. And in fact if you look at the past year, I think our firm has probably grown by 30 percent or so.

Rai is now head of investment banking at Pali. He says resumes are pouring in from people at high-profile banks like Morgan Stanley.

Rai: Which I think a year and half or two years ago would not have been possible. Because those guys A. would not have been willing to leave, and 2. not go to a smaller platform that they probably hadn’t heard of.

After all the upheaval on Wall Street, Jefferies & Company says it’s now the largest independent U.S. investment bank.

Dan Markaity joined recently from Merrill Lynch to build the company’s bond business. Jefferies hasn’t escaped unscathed — it’s had to lay people off, too. But Markaity says the firm is growing in areas like government bonds and the old-fashioned advice business.

Dan Markaity: The growth right now will come from just going back to the basics of what the industry really was — was bringing buyers and sellers together, providing advice to clients, and kind of the basic stuff that, you know, got lost somewhere in the last two or three years.

So will the Jefferies and Pali Capitals of the world grow up to be the next Wall Street behemoths?

Michael Henry is a consultant to the financial services industry with Accenture. He doesn’t think so.

Michael Henry: As these companies grow, they’re going to hit some of the same limitations as the larger banks have. They’re not going to be able to get as much leverage on capital.

It was that leverage — essentially borrowed money — that got big banks into so much trouble. The folks at Jefferies say they hope to grow without making the same mistakes.

In New York, I’m Amy Scott for Marketplace.

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