The events that occurred in the financial services industry over the past year were once thought inconceivable. At this point, regulators are chomping at the bit to reverse how Wall Street does business, and investors are downright spooked. The editors of SourceMedia's business publications offer their views on how these dramatic shifts on Wall Street and in corporate America will impact businesses and investors this year.

Mutual Funds: Fund companies are fearing steep declines in assets at least over the next two quarters. In the first 11 months of 2008, mutual fund assets overall fell by 22%, from $12 trillion to $9.3 trillion, and many firms have lost as much as 30% of their assets under management. Investors are likely to continue fleeing to the safety of fixed-income, money market funds, Treasuries and cash, and some firms will have no choice but to continue laying off staff.

Large firms with stellar reputations; strong fixed-income and money market lineups; and the deep pockets to continue partnering with financial advisers and advertise sound investing to customers will increase market share in the new year, while smaller fund companies or asset management units will be acquired or face market-share erosion. -Money Management Executive.

Trading: In a new regulatory environment, a number of long-standing trading issues, such as soft dollars and dark pools, are likely to be addressed. Also expect hedge funds to come under greater regulation, which will certainly affect brokers' trading and prime brokerage services. Brokers have geared their business toward hedge funds for the last several years, and their bottom line would definitely feel the impact of a shrinking hedge fund universe.

We're also likely to see the buyside continue to direct more of its trades internally once the current volatility abates. Currently, due to volatility, brokers/sales traders have been handling more orders for their clients. That has gone against the trend of the buyside doing more self-trading over the last several years. - Traders Magazine.

Regulation, Regulation and More Regulation: Credit card practices, mortgage disclosure, hedge funds, mutual fund fee disclosure, suitability standards, loan modifications, executive compensation, ratings-agency status, overdraft guidelines, Basel II deadlines. There may be no area of financial services where rules are not tightened. And it won't just be regulators leading the charge; leading members of the newly elected Congress have made it clear that they'll be pushing for change, too. Even if certain areas of regulation stay the same, the disappearance of vast swaths of unregulated financial services means a much bigger piece of the industry is now under the watch of the Federal Reserve, in some cases by choice. - American Banker.

Investment Banking: In a year that saw nearly every aspect of the capital markets turned upside down, perhaps no industry was more impacted than this one. Besides the crumbling of household names on Wall Street, events conspired against the remaining firms in a way that will leave those institutions less able to take on risk and more beholden to regulators. Earnings derived from investment banking operations will be down dramatically this year, not only in some of the more exotic sides of the business but in traditional deal-making and stock issuance, too. - Investment Dealers' Digest.

Mergers and Acquistions: The market for M&A will likely remain stalled in 2009, as both acquirers and targets sit on their hands in what has become an uncertain market. As the economic picture dims, neither side can find any comfort in financing or forecasts, which makes modeling deals extremely difficult in all but a few sectors. Industries such as asset management, retail, publishing, energy, manufacturing and homebuilding could be marked by distressed activity, while a few select areas, such as healthcare, could experience more traditional M&A interest from both strategic acquirers and private equity buyers. - Mergers & Acquisitions.

Housing: The home price collapse that triggered the current financial crisis will bottom out in 2009, leading to a mortgage sector recovery in 2010. It is said that housing always leads the economy into recession and then back out of it. This is certainly true again this time, at least on the front end. Real estate went into recession in 2006, followed by the mortgage industry in 2007 and the national economy this year. A further 10%-15% fall in home prices in overpriced states should establish a bottom that will bring fence-sitting buyers back into the market for homes. -National Mortgage News.

Securitization: It remains a bleak picture for asset-backed securities, with issuance expected to be focused on credit cards and autos, with a smattering of student loans. However, problems remain in each of these areas. In credit cards, for instance, there is proposed regulation that would prevent credit card lenders from charging high interest rates, which would in turn lessen the excess spread on deals.

The credit card industry is also facing historically high charge-offs in the coming year. For autos, headline risk is still a key factor because of the potential for bankruptcy within the Big Three. - Structured Finance News.

Technology: IT executives will be watching their budgets-especially when it comes to nonessential hardware purchases, such as PC upgradesbut they will spend on technologies and services that make their organizations more efficient. This includes server virtualization products, on-demand (hosted) software services, green IT initiatives, and data management improvement efforts-including master data management, predictive analytics and business intelligence projects. Other technologies that will be increasingly deployed in 2009: Web services, enterprise mash-ups, unified communications and social networks. - DM Review.

Bank and Thrift Consolidation: Many who keep an eye on banking M&A think the ongoing recession in 2009 could make it one of those years that significantly alters the landscape, taking out hundreds of companies, if not more. Where once perceived sellers carried takeover premiums, market prices are now at much lower multiples to book value, which may help would-be buyers find the willpower to put down some bids.

A trend that began in late 2008 that is likely to continue is the government playing matchmaker with failed or near-failed institutions. -American Banker.

Credit Cards: Expect credit card issuers to pull back on the number of cards they issue and amount of credit they offer in response to rising delinquencies and charge-offs. Add investor skittishness spreading to credit card asset-backed securities and new federal rules that strictly limit how issuers can set and charge interest on credit card accounts, and you have a perfect storm for cutbacks in card offers and credit availability. - Cards & Payments.

(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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