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As Predicted, Wall Street Probe Widens



May 13, 2010 – Comments (0) | RELATED TICKERS: JPM , C , GS

Yesterday, in Morgan Stanley Wishes It Weren't Like Goldman Sachs (May 12, 2010), I wrote:

If regulators and prosecutors are consistent (a brave assumption, perhaps), we should expect more charges and/or investigations -- it's difficult to imagine that Goldman and Morgan Stanley did business in a manner that was significantly different from their competitors.

Today, the headline article on the front page of the Wall Street Journal is Wall Street Probe Widens (May 13, 2010). According to the Journal's source:

The banks under early-stage criminal scrutiny—J.P. Morgan Chase & Co., Citigroup Inc., Deutsche Bank AG and UBS AG—have also received civil subpoenas from the Securities and Exchange Commission as part of a sweeping investigation of banks' selling and trading of mortgage-related deals...

Note that three of the four banks (J.P. Morgan, Citi and UBS) were ahead of Goldman and Morgan Stanley in the table I included in my article ranking lead underwriters of CDOs for the period 2005-2008.

As I stated in the article, I don't think any of these investigations will result in a trial; however, my sense is that regulators and prosecutors are building momentum towards an umbrella settlement on the marketing of derivatives, similar to the global settlement that was reached in 2003 with ten investment banks addressing the conflicts between investment research and investment banking

Alex Dumortier


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