Gretchen Morgenson: The end of banking as we’ve (recently) known it

Her prediction – financial services will return to the dull old boring days when the good ones traded at 1 to 1.5 X earnings  book value.  No more leveraging 30X, no more out-sized salaries and, by the way,higher interest rates. My manager tells me that our office saw a large number of house viewing appointments today so maybe buyers are ahead of those pundits who think mortgage rates are going to fall lower and stay lower.

But sellers might want to consider what will happen if the financial services jobs and multi-million dollar bonuses disappear, especially if accompanied by higher mortgage costs. Nothing good.

And hedge funds? They’re not doing so well either. These guys charged 20% of the profits they earned: no profits, no 20% and no 20% until they earn back their losses, if they ever do. Citadel’s  Kenneth Griffin, whose fund lost 55% this year, says he’s trying to stay open. “But he acknowledges that for several years, he will be working mostly for ‘psychic income.’ “

Griffin will survive, but a lot of junior hedge funders will not be buying $4 million homes in Greenwich in the near future. Looks like the only ones who will will be Greenwich town employees.

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2 responses to “Gretchen Morgenson: The end of banking as we’ve (recently) known it

  1. Rob

    I think you mean 1 – 1.5x book value, not earnings.

  2. christopherfountain

    Yup – thanks.