Tags: Whalen | Big | Banks | Split

Chris Whalen to Moneynews: Big Banks Will Split Up but Small Banks Look Good

Monday, 23 Apr 2012 01:55 PM

By Forrest Jones and John Bachman

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Big financial institutions will split and go back to their core functions of offering either retail or investment banking services, says investment banker Chris Whalen.

"I think you will see Bank of America sell Merrill Lynch before long. It makes a lot of sense. They need to raise some money. Morgan Stanley — they have Smith Barney, they have the old Discover Business. Both of those are under a lot of stress right now," Whalen tells Newsmax.TV in an exclusive interview.

"I would not be surprised to see the bigger retail firms, if you will, shed their retail arms and go back to being in investment banking and institutional sales trading, because I think those businesses make more sense than the retail business does right now."

Story continues below video.


Big banks would be more valuable broken up and sold off, as the value isn't there to continue running massive organizations.

"We still have a lot of challenges in the industry both in terms of where the revenue is coming from and the cost factor," says Whalen, co-founder and vice chairman of Lord, Whalen LLC, parent of Institutional Risk Analytics, the Los Angeles-based provider of bank ratings, risk management tools and consulting services for auditors, regulators and financial professionals.

Regulations like Dodd-Frank are hurting the sector as well, and a revamped financial services industry will benefit all.

"You are going to see Bank of America and even Wells Fargo, believe it or not over time, get out of the mortgage conduit business. There's a revolution that's going to occur here and it's good in a way, but over the next couple of years you're not going to have any jumbo financing out there for the real estate sector."

Jumbo mortgages are large home loans that exceed the maximum loan amount that Fannie Mae and Freddie Mac will buy.

Editor's Note: Google Banned This Video But You Can Watch it Here

Small banks, meanwhile, are looking more attractive.

"Most small banks are well capitalized. They do have money to lend, so particularly if you are looking for a jumbo mortgage, in other words, a mortgage above the size that you can get a government guarantee on today, you need to be out there talking not only to the smaller banks in your community, but also non-bank lenders," Whalen says.

"When you really look at what's going on in the marketplace today the small banks are at an advantage to the extent they have cash to lend, and they have existing relationships."

Banks that are doing well include U.S. Bancorp, KeyBank and Sun Trust, and there is a simple trick to gauge which banks are likely to succeed.

"Look at the ones that are buying dead banks," Whalen says.

"It's an interesting exercise for investors. Go on the FDIC web site and look at who's buying the failed institutions."

Editor's Note: Google Banned This Video But You Can Watch it Here



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