From Dow Jones and Co.
Six months from now, the U.S. will have a new president, a new Super Bowl champion and a vastly different financial services landscape on Wall Street. But even after yesterday’s stunning rejection of a $700-billion bailout by the House of Representatives, it’s hard to believe the banking sector in particular will undergo the breadth and depth of dramatic changes it has already experienced in the previous six months. From the Fed’s bailout of Bear Stearns, to the stunning collapses of Lehman Brothers and Merrill Lynch and last week’s disintegration of Washington Mutual (WM), the biggest failure in U.S. banking history, investors have witnessed some cataclysmic events.
According to the Federal Deposit Insurance Corp., 13 banks have failed this year alone through last Friday. What could the next six months bring that could possibly match these unprecedented episodes?
Sean Snaith, a professor with the College of Business Administration at the University of Central Florida, believes investors will no doubt witness many more bank failures and further consolidation in the industry over the next six months.
“We will probably have a bi-modal situation in banking. Very large institutions —which are able to absorb some of these failing institutions — they’ll be around obviously. We’ll also see a lot of smaller community banks that had little or no exposure to mortgage-backed debt emerge as strong survivors.”
 
Problems will likely occur among the mid-sized banks and regional banks due to their high exposure to toxic mortgages, said Michael Yoshikami, President of YCMNET Advisors. “These types of banks — including such firms as National City (NCC), and even larger banks such Wachovia (WB) — will be hard pressed to absorb the size of losses and write-downs they are facing. Conversely, they were not small enough to resist the attractiveness of risky mortgage exposure.”
The inevitable consolidation in banking will result in stronger surviving companies, enjoying greater market share as their weaker rivals fall by the wayside. Lawrence Glazer, Managing Partner of Mayflower Advisors in Boston, provides a quick history lesson.
 
He indicated that during last big real estate downturn in the U.S.(1986-1991), the economy lost over 1,000 banks and S&L’s. “The survivors of the shakeout enjoyed the bull market of the 1990s,” he said.
Glazer has a decidedly sanguine view of the near-term future of banks.
 
Commercial Paper Prepares For Freeze
 
The failure of the U.S. government’s bailout plan to gain sufficient congressional support is likely to push the commercial paper market into a deep freeze Tuesday when it reopens for active trade.
That means that money market funds, which are the biggest investors in commercial paper, are likely to focus their buying on short-term U.S. Treasurys, the ultimate safe-haven.
Anything that is not a Treasury…… it’ll be hard to find a buyer.