Thirty Days That Shook the World

By: Ray Pellecchia

File Under: NYSE Euronext

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This half-hour video is almost three months old, but for some reason I just got a belated Google alert about it. It captures remarks by NYSE Euronext CEO Duncan Niederauer at Boston College's CEO Club at an interesting point in time: 7 October, 2008. As Duncan notes early in his remarks, a lot had happened in the previous 30 days:

• Exactly a month earlier, Duncan's Sunday celebration of his birthday was interrupted by news that the U.S. government was seizing Fannie Mae and Freddie Mac, he recounts. That was followed in short order by:
• Merrill Lynch's "forced marriage" to Bank of America;
• Washington Mutual's similar marriage to J.P. Morgan;
• Wachovia's to what at the time was "a player to be named later;"
• AIG being "more or less nationalized;"
• In Europe, similar news on Fortis and Dexia;
• Morgan Stanley and Goldman Sachs becoming bank-holding companies; and
• The SEC's temporary ban on short selling.

So Duncan's speech takes place on the heels of 30 days that transformed the financial world, not to mention, he adds, that the Dow dropped 800 points the day before the event, to fall back below the benchmark 10,000 level.

In view of all that, Duncan uses his remarks to outline a "new reality."

In the newly emerging financial landscape, he notes, banks and investment banks have converged. "I don't know if the so-called investment bank survives this transformation," Duncan says. The two largest remaining investment banks had just become bank-holding companies, he adds. This also means less leverage in the system, which he says is probably healthier in the long run. It also means lower returns on capital. Customer deposits are king, which was evident in the then-competition to acquire Wachovia.

Another key component of the new reality has to be a migration toward transparency, Duncan says. There will be regulatory pressure to move some of the financial products that have traded in the dark, with little regulation, into the more transparent exchange-trading umbrella. He calls for regulators, the industry and the exchanges to "come to the table" to develop mutually acceptable solutions to create greater transparency.

Duncan also poses a couple of questions "that we should all be asking ourselves":

• How do we put American capital markets back to work? Duncan notes to the Boston-based audience that only one venture-capital-backed company went public in the first quarter of 2008; none in the second quarter, the first time that had happened in decades; and five in the third quarter.

• How do we ensure America's ability to compete globally? He observes that the U.S. no longer is the default choice of non-U.S. companies raising capital outside their home markets.

He also wonders aloud whether we could "piggyback" off the then-pending federal rescue plans to begin getting back to where we need to be in terms of rebuilding confidence in our financial institutions and the economy.

Again, the remarks are "as of" early October and of course the world has continued shaking since then, but I thought the talk offers some neat insight into that snapshot point in time. My summary doesn't really do it justice; listen yourself if you have a chance. As always, your thoughts are welcome in the "comments" box below.