High Finance Eyes IPOs For Exit Strategy

Public listings, corporate restructurings and subsidiary spin-offs are the bread and butter of the investment banking industry. In the aftermath of the credit crisis, the banks are now focusing these talents — usually reserved exclusively for cash-flush conglomerates — on themselves.

Tuesday, Nasdaq president Magnus Bocker announced that among the pending initial public offerings (IPOs) coming up in the next few months is a host of financial firms. After a wave of forced takeovers and earnings writedowns last year, financial institutions are now looking to divest different areas of their businesses for maximum profitability, he said.  

“As an effect of the breakup of many large banks, you will see spinoffs; you will see companies and teams starting their own business,” Bocker told the audience attending the Reuters Exchanges and Trading Summit in New York. Bocker cited the financial services industry as one of the key sectors where Nasdaq is attempting to snatch market share from the larger New York Stock Exchange.

A diaspora across the financial industry has been brewing for some time now. In April, I broke the story here on BNET of how top bankers were fleeing the large investment banks in order to start their own smaller, niche firms. That trend was subsequently seen in the hedge fund industry, where fund managers have been shunning the billion-plus dollar money management jobs for a crack at running just a few million of partner-only capital. IPOs of big banking subsidiaries are the next logical extension of that trend.

Nasdaq’s Bocker is right to focus his attention towards listing financial firms. Apart from online broker E*Trade Financial, the only banks and brokers listed on the Nasdaq right now are much smaller regional companies such as Fifth Third Bancorp and North Trust. To Nasdaq’s frustration, there haven’t been that many financial IPOs around. In the past, NYSE-listed goliaths such as Morgan Stanley and Goldman Sachs have dominated any potential market share for start-ups.

Now, however, that’s all about to change. Morgan Stanley recently made noises about spinning off its proprietary trading desk into a single-standing hedge fund-style entity. Most recently, one analyst told CNBC that the former Merrill Lynch would likely “be spun off in a couple of years” by Bank of America into an IPO of its own. That’s a trend that makes a lot of sense to banks saddled with peripheral buyouts once liquidity returns in full force to the stock market.

The biggest irony, of course, is that yesterday’s trash may be tomorrow’s truffles. As these financial firms go public, you can count on a whole host of investors eager to get in on the newly slimmed-down boutique financiers. Perhaps even, just as quickly as the financial services industry made a giant crater in the economy, it will deliver bumper growth.