New Wall Street crisis will create a new financial world order, says RCM CIO

[Nostalgia]

As the sell-off in global markets continues, RCM's CIO for Europe Neil Dwane believes the aftermath of Monday's events will lead to the formation of a 'new world order', in which the remaining financial giants will flourish.



'Merrills rushed into the arms of Bank of America (BoA) who last night shut down its investment banking operations admitting failure. Surely BoA will not indulge Merrills' investment banking operations anywhere near to the extent that the old Merrills' management had done?' Dwane asks.

Dwane believes the key implication of the Fed's decision not to facilitate the sale of Lehmans Brothers is that it shows that capacity is being removed from the markets, alongside the clear message that 'policy will not bail out all investors and losers'.

'Moral hazard is back and negligent Boards will find there to be no willing supplier of capital except on very onerous terms. The key messages of this weekend remain that capital remains scarce, leverage and accounting for the leveraged assets remains incomplete and inconsistent and a New World order is being born where financial behemoths are best placed,' he says.

One of the key features of this 'New World order' will be increased regulation, transparency and risk control, according to Dwane. However, the CIO of the equity specialist of Allianz Global Investors is anxious that 'investors remain complacent over the changes to come and the lower returns and earnings power of the sector in the future'.

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