Glass-Steagall, the Four Horsemen, and the Crippled Job Market

By Pam Martens: November 27, 2012

Much of the current dysfunction and corruption on Wall Street has been laid at the feet of the repeal of the depression-era investor protection legislation known as the Glass-Steagall Act, which barred investment banks that underwrote securities from mergers with commercial banks taking insured deposits.

The merger of Citicorp (parent of Citibank) with Travelers Group in 1998 forced the hand of Congress to pass the Gramm-Leach-Bliley Act in 1999, which repealed the barriers imposed by the Glass-Steagall Act.

Committees in both the Senate and House of Representatives have now begun to look beyond the Wall Street carnage of 2008 to the intractable problem of creating jobs in America.  There is concern that the framework of Wall Street is creating structural impediments to job creation.  Those concerns are very real.

In November 2009, David Weild and Edward Kim authored a study for the accounting firm, Grant Thornton LLP titled “A Wakeup Call for America.”  The study made the following startling findings:

Since 1991, the number of U.S. exchange-listed companies is down more than 22 percent, and when adjusted for real GDP growth (inflation-adjusted), that percentage balloons to a startling 53 percent.

360 new listings per year — a number we’ve not approached since 2000 — are required to replace the number of listed companies lost in the U.S. In fact, the U.S. has averaged fewer than 166 IPOs per year since 2001, with only 54 in 2008. (Those numbers do not include listings of funds, ETFs, REITs.)

Up to 22 million U.S. jobs may have been lost because of the broken U.S. IPO market.

The authors note that the decline in IPOs began just around the time that the Four Horsemen, four boutique investment banks which played a seminal role in bringing innovative companies to market, were gobbled up by mega banks.  But the report fails to develop that thesis or provide in-depth analysis of the role the disappearance of those independent firms may be playing in today’s struggling job engine. 

Who were the four horsemen? Alex. Brown & Sons, Robertson Stephens, Montgomery Securities, and Hambrecht & Quist. 

Alex Brown’s roots dated back to 1808.  It was involved in the IPO of Microsoft and Oracle Systems. It was acquired by Bankers Trust in 1997 and two years later merged into the German behemoth Deutsche Bank. 

Robertson Stephens was a much younger firm, starting out in 1978. The firm was involved in the IPOs of Sun Microsystems, Excite and Chiron.  Before being sold to BankAmerica for $540 million in 1997, the company was lead or co-manager on 10 of the top 25 best IPO performers in 1997.  (The firm was resold several times after that, each time to a large commercial bank and eventually liquidated.) 

Montgomery Securities, heavily involved in high-tech issues, was sold to Nationsbank for $1.2 billion in 1997.  Nationsbank would acquire BankAmerica the following year, but keep the name BankAmerica as the legal entity. In 2008, during the financial crisis, BankAmerica purchased the large retail brokerage firm, Merrill Lynch, which was teetering near insolvency.  

Boutique investment bank, Hambrecht & Quist, was the final of the Four Horsemen. The firm was founded by Bill Hambrecht and George Quist in 1968. The firm was the underwriter of the following well known firms: Apple Computer, Genentech, Adobe Systems, Netscape, and  In September 1999, Chase Manhattan Bank acquired the firm for $1.35 billion. The firm is now part of the largest U.S. bank, JPMorgan Chase, currently  under criminal and civil investigations in the U.S. and abroad.

There is no question that the current structure of Wall Street is both unsustainable and a critical head wind to ramping up economic growth in America.  The pivotal role played by the previous independent boutique investment firms and investment bank partnerships which had their own money on the line when they invested in startups, must be thoroughly investigated by Congress before it makes any sweeping decisions on restructuring Wall Street. 

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