Tracing a direct link from the present troubles of large financial services groups such as Citicorp and JP Morgan Chase to the future of the securities services industry is a necessarily speculative activity. The fact that both of these icons of American banking have endured 20 per cent plus falls in their share prices this week despite reasonably robust underlying financial performances suggests that there is more behind the negative sentiment than a bear market and some potentially costly inveiglement in the Enron debacle.
Investors are naturally wondering if the premiums they collected on the mergers which created these behemoths way back in the days of the bull market might have created organisations which they cannot understand and their managers cannot control. Which means that shareholders will now support either existing management, or a third party management prepared to bid for the job, in taking them apart again. The same investment bankers which put them together will of course be at hand to assist.
At both Citigroup and JP Morgan Chase, securities services are now relatively small businesses within large organisations. Investors have noted the relative resilience of the two major American banks which have chosen to specialise in the business: Bank of New York and State Street. So too will their large institutional clients. Recent events will not be making custody and clearing sales any easier at Citibank or JP Morgan Chase. And doubtless their specialist rivals are not losing any opportunities to cast doubt on their long-term commitment to the business.