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The Digital Financier Update (DFIN.COM Update) provided a weekly commentary on important stories with significant financial, and or Internet implications during the early years of Internet commerce. The purpose was designed to provide finance professionals and staff with a timely brief synopses of recent and news that best illustrates the changing digital economy. The stories have impacted all of us. Many of our stories may have received very little popular press coverage.
This publication is designed to be a quick read and the archive is a good resource for financial history.
The most common sources for the DFIN.COM Update include UP, AP, Fast Company, Business Week,The Economist, Forbes, Wired, Federal Reserve Bank Publications. The Wall Street Journal Interactive, MSNBC, L.A. Times, San Jose Mercury News.
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Week of September 20, 1998
Commercial Mortgage-backed Securities Hurt Nomura. Business Week (October 5, 1998, p. 43) reported that the sharp declines in the value of commercial mortgage-backed bonds has lead to management changes and the need for a $380 million capital injection into Capital America, a Nomura Holding America subsidiary. Ethan Penner, the head of Capital America and one of Wall Street’s highest paid bankers, resigned over the losses. Like other high-risk bonds, commercial mortgage bonds suffered a substantial decline in value in the face of rising Treasury bond prices.
Long-Term Capital Management L.P. Receives Bailout. The Wall Street Journal (September 24, 1998, p. 1) reported that some of the US’s largest investment bankers agreed, with the support of the Federal Reserve, to provide a $3.5 billion emergency financing package to the hedge fund. Without the loans, the fund would have had to liquidate huge amounts of securities that served as collateral for loans subject to margin calls. The resulting market impact was considered to be far reaching with negative impacts throughout the financial system.
Federal Home Loans Banks to Take on Secondary Market Enterprises. The Wall Street Journal (September 24, 1998, p. B7) reported that the Federal Housing Finance Board (Board) approved an substantial increase in the authorized mortgage financing program being offered by one of the twelve Federal Home Loan Banks. The Board also made it clear that other banks could offer the program which the Board feels will help homebuyers. The program provides the first real competition for Fannie Mae and Freddie Mac who oppose it.
Merrill Spokesman Says Online Trading Too Dangerous. The Wall Street Journal (September 23, 1998, p. C1) reported that a senior Merrill Lynch & Co. spokesman has publicly attacked the online brokerage industry as being too risky for investors. With 14,800 brokers, Merrill has been struggling with how best to deal with the fast growing online competitors. The main point of the argument is that online investing fosters overtrading.
Financial Crimes Unit Reduces Cash Reporting Requirements. The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) (Press Release, September 21, 1998, http://www.treas.gov/fincen/exemnet.html ) announced a final rule to significantly reduce the number of times depository institutions must report large currency transactions. The rule is aimed at exemption of non-public companies, especially smaller businesses, which represents a majority of reports filed today. It permits banks to exempt a domestic business that has routine needs for large amounts of currency by simply filing a form stating that the business is exempt. In 1997, financial institutions filed over 12 million reports.
Comptroller Reports Continued Strong Derivative Growth in Banks. The Comptroller of the Currency (OCC Bank Derivatives Reports, Second Quarter 1998, http://www.occ.treas.gov/ftp/deriv/dq298.pdf ) reported that the notional amount of derivatives in insured commercial banks increased by $2.1 trillion in the second quarter of 1998. On June 30, 1998, the notional principal of interest rate contracts reached $20 trillion, foreign exchange $8.1 trillion, and equity, commodity, credit and other $0.7 trillion. Eight commercial banks accounted for 95% of the total and 25 accounted for 99%.
Week of September 13, 1998
Buffet Loads Up on Cash. The Wall Street Journal (September 17, 1998, p. A3) reported at a special stockholders’ meeting, Warren Buffet, chairman of Berkshire Hathaway, Inc., the closed-end fund, that the fund had accumulated $9 billion in cash. Buffet suggested that the recent market decline was not yet dramatic enough to trigger buying.
15-year Mortgages Increase in Popularity. The Wall Street Journal (September 17, 1998, p. C1) reported that 15-year, fixed-rate mortgages were suddenly much more popular compared to 30-year mortgages. The reason apparently is increased stock market volatility and falling stock prices. Since 15-year mortgages require higher monthly payments, they represent a form of forced safe savings which may be more popular with households in light of increased volatility in the stock market.
GE Capital Takes on Europe. The Wall Street Journal (September 17, 1998, p. A18) reported that GE Capital had accumulated over $50 billion in assets in Europe, up 10 times the 1994 level. Profits of the European operations have grown even faster than assets, which has been an embarrassment for many European financial companies.
Office of the Comptroller of the Currency (OCC) Warns of Risky Lending. Acting Comptroller of the Currency Julie L.Williams (NR 98-97, September 18, 1998, http://www.occ.treas.gov/ftp/release/98-97.txt) provided examples of the kinds of poorly-underwritten loans that have led the OCC to issue a bank credit quality warning. Ms. Williams said banks should take immediate steps to deal with poorly structured loans, including the following:
Increase the scope and frequency of loan reviews as a critical part of a bank's credit risk process
Augment workout staffs and involve workout experts in loan monitoring efforts
Periodically reassess their strategic portfolio objectives and risk tolerance limits
Carefully examine the adequacy of capital and loan loss reserves in light of credit risk ratings
Week of September 6, 1998
Capital Controls Are Back Again. The Economist (September 12 ,1998, pp. 83-85) reported that Malaysia’s imposition of capital controls has governments around the world discussing their strengths and weaknesses. Capital controls are used to limit the flow of capital investment in and out of a country. They relate to limits on foreign investment in financial instruments, capital direct investment by foreigners in businesses and property, and domestic investments outside of the country. Capital controls are still widely used in developing countries to avoid price bubbles caused by capital inflows and sharp recessions caused by capital outflows. Although there is little evidence that capital controls work in the long-term, they still represent one of the few policy tools for governments to use during periods of monetary and economic crisis.
Wall Street Rocket Scientists Experience Failure. Business Week (September 21, 1998, pp. 114-120) reported that most statistical trading models used by Wall Street’s most respected analysts to execute sophisticated arbitrage strategies failed miserably in the recent market decline. The best known case, that of the Long-term Capital Management L.P. arbitrage fund, whose advisers are two Nobel laureates in economics, Robert H. Merton and Myron S. Scholes, was among the worst performers. Analysts attribute the losses to the fact that models base there valuations and price relationships on past prices and cannot foresee future events that break those relationships. Others argue that a lack of liquidity and political risks cannot be captured by the models. Some simply argue that technicians with "black boxes" have limited market experience.
Clinton Problems Concern Some Investors. The Wall Street Journal (September 11, 1998, pp. B1-B6 and C1-C22) reported that the release of the "Starr Report" could unleash psychological forces that could affect the real economy as well as stock prices. Although few analysts believe that Clinton’s problems can directly affect economic fundamentals, some believe that the population’s feeling of well being could be negatively affected by the uncertain political issues relating to Clinton’s problems. Stock market declines leading up to Richard Nixon’s resignation and now to Clinton’s, however, seem to be related to economic fundamentals not political issues.
Junk Bonds Take Dive. The Wall Street Journal (September 8, 1998, p. C1) reported that high-yield bond investments experienced one of their worst price declines in August and early September. The yield spread between high-yield bonds and 10-year U.S. Treasuries, often used by traders to track high-yield bond performance, increased from a relatively narrow 3.40% in early August to well over 5.00% in early September. The spread had narrowed to less than 3.00% in August. Traders attributed the decline to a lack of market liquidity.
Week of August 30, 1998
Bond Traders Concerned About Inverted Yield Curve. The Economist (September 5, 1999, p.66) reported that the U.S. Treasury bond yield curve, the relationship of interest rates on Treasury securities with differing maturities, has become very flat and even slightly inverted, (e.g., short-term rates above long-term rates), when the federal-funds rate is compared to the long-term Treasury. This flattening of the curve has been associated with economic recessions in the past. Although many analysts attribute the decline in longer-term rates to a flight to safety by international investors, the flattening process with require careful watching in the weeks ahead.
Wall Street Party Is Over. Business Week (September 14, 1998, p. 44) reported that concerns over Russia, Asia, Latin America and diminished prospects for acquisitions and initial public offerings has sunk most investment banking stocks. Many of Wall Street’s largest firms have experienced declines in stock prices of 25-50% from their 1998 highs.
Latin America Problems Add to Russian Wows. The Wall Street Journal (September 3, 1998, p. A14) reported that Colombia allowed its peso to drop in value, setting off new concerns of currency weakness throughout Latin America. Experts are concerned that Mexico, Venezuela, and Brazil will face growing pressure to devalue. The Wall Street Journal Interactive (September 3, 1998, p.1) reported that Latin American concerns added to growing concerns about Russia and Asia to contribute to further weakness in the U.S. stock market on Sept. 3.
Declining Bank Stock Prices Could Put Damper on Acquisitions. The American Banker Online (September 3, 1998, p. 1) reported that many bank holding companies have experienced a 40% decline in equity prices from 1998 peaks. The result is a diminished likelihood that continued record acquisition multiples will be paid for bank acquisitions in the month ahead. The stocks of the acquiring companies seem to have experienced the sharpest declines.
London Futures & Options Exchange (Liffe) Reacts to Electronic Trading. Futures (September 1998, pp. 82-83) reported that the Liffe exchange is scrambling to implement electronic trading to compete in Europe. Liffe is the last major European holdout for the open outcry system that is being replaced by electronic order execution in most European markets. Experts expect Liffe’s floor traders to be the victims.
Week of August 22, 1998
Russian Markets Worry Wall Street and Bankers. The Wall Street Journal Interactive (August 27, 1998, p1) reported that financial and political turmoil in Russian is reeking havoc with financial market around the world and putting earnings pressures on commercial banks with exposure to Russian financial assets. The Dow Jones Industrial Average fell by 357 points on August 27 while Republic Bank of New York reported that losses on Russian securities would wipe out the holding company’s third-quarter 1998 profit. Equity prices in Japan and Europe also fell sharply.
New Manual to Access Bank Internal Controls. The Office of the Comptroller of the Currency (OCC) (August 25, 1998, http://www.occ.treas.gov/98rellst.htm) issued a new manual to help examiners evaluate the internal control systems national banks use to guard against fraud and financial mismanagement. OCC officials attribute slippage in effective internal controls to complacency created by prosperity and to cost-cutting pressures. The internal controls discussed fail the following categories: (1) Limits on authorities; (2) Safeguards on access to and use of records; (3) Separation and rotation of duties; and (4) Both regular and unscheduled reviews, including testing.
Real Estate Markets Strong According to Commercial Bankers. The Federal Deposit Insurance Corporation (Survey of Real Estate Trends, 8/24/98, www.fdic.com/databank/retrends/1998aug/retrends9807.pdf) reported that in July 1998 61% of commercial bank lending officials surveyed reported stronger existing home markets. 75% reported rising existing home prices and 68% rising sales versus 49% in July 1997. Only 12% of those surveyed characterized their commercial real estate market as "excess supply." This was down from over 80% from 1991-1993.
Internet and Technology Use for Home Mortgage Lending Rises. The Wall Street Journal (August 24, 1998, p. A7B) reported that the home mortgage lending business is undergoing radical change as a result of the Internet. Increased availability of personal finance information and algorithms for solving problems, such as when to refinance, are turning the Internet into a viable lending distribution system. The Wall Street Journal (August 24, 1998, p. A6B) also reported that average closing costs and fees have dropped significantly from 1993 levels, in part, due to the use of technology in automated underwriting and the Internet.
Fed Reports Lending Conditions Largely Unchanged. The Board of Governors of the Federal Reserve System (Senior Loan Officer Opinion Survey on Bank Lending Practices, August 1998) reported that banks U.S. lending standards were largely unchanged since the May 1998 report. In sharp contrast, the survey disclosed that lending standards at U.S. branches and foreign banks were tighter. Foreign banks attributed their change in standards to concern over their parent banks financial condition. The banks also reported somewhat tighter profit margins on loans and a reduction in demand from large firms. Lending standards were reportedly tightened on credit cards and consumer loans and unchanged for home mortgages.
Week of August 15, 1998
On-Line Brokers Growth Accelerates. The Wall Street Journal (August 17, 1998, p. B 10) reported that on-line trading volume jumped 95% in the second quarter of 1998 compared to the year earlier period. Industry leader, Charles Schwab Corp., reportedly lost two percentage points of market share to fast growing low-rate competitors. Schwab’s leading market share was followed by E*Trade Group, Fidelity Investments, and Waterhouse Securities.
GE Capital Offers to Buy Met Life Unit. The Wall Street Journal (August 18, 1998, p. B6) reported that General Electric’s finance unit, GE Capital, offered over $1 billion to acquire the equipment leasing and real estate-financing unit of Metropolitan Life Insurance.
American International Group, Inc. Acquires SunAmerica Inc. The Wall Street Journal (August 20,1998, p. A3) reported that American International Group, Inc. (AIG) offered to acquire SunAmerica, a major seller of annuities, for over $18 billion. The deal brings together firms run by two of the insurance industry’s most successful chief executives, AIG’s Maurice Greenberg and SunAmerica’s Eli Broad.
Institutional Investors Control Majority of U.S. Equities. The Conference Board (Conference Board Institutional Investment Report, Volume 2, Number 2, August 1998) reported that institutional investors own nearly 60% of the outstanding stock of the largest 1,000 U.S.corporations. Control is also getting more concentrated as the largest investors controlled 19.7% of total outstanding equities in 1997, up from 16.7% in 1996.
Week of August 8, 1998
Northwestern Mutual to Buy Frank Russell. The Wall Street Journal Interactive (August 10, 1998, Front page) reported that Northwestern Mutual agreed to buy Frank Russell Co., one of the largest pension consultants and mutual-fund money managers. Experts estimate the transaction to be worth over $1 billion. Northwestern is said to be interested in the additional investment products that Russell will provide its sales force.
Goldman Makes Going Public Official. The Wall Street Journal Interactive (August 10, 1998, Front page) reported that Goldman Sachs & Co. employee owners voted to raise outside capital with a planned offering of 15% of the company expected to raise more than $3 billion. The IPO is expected to value Goldman at between $25 billion and $32 billion.
Credit Union Membership Act Moves to NCUA. The American Banker Interactive (August 20, 1998) reported that The Credit Union Membership Access Act is expected to be quickly implemented by the National Credit Union Administration after President Clinton recent signing. The law was quickly passed to overturn a U.S. Supreme Court decision requiring credit union members to share a single, common bond. The act does impose a few new restrictions on credit unions including a limit on commercial lending to 12.25% of credit union assets and a 7% capital requirement. Especially important will be NCUA’s definitions for restrictions of new members to "well-defined local community, neighborhood, or rural district" and "immediate family or household."
Week of August 1, 1998
Internet Investors Provide Stock Fraud Evidence to SEC. The Wall Street Journal (Aug. 4,1998, p. C1) reported that the U.S. Securities and Exchange Commission receives hundreds of emails each week with information about potential stock frauds. The SEC recently set up the Office of Internet Enforcement to investigate potential cases.
Several Fed Officials Worry About Money Supply Growth. The Economist (August 8, 1998, p. 64) reported that several Federal Reserve Open Market Committee members have been advocating raising the Fed funds rate in response to fast money supply growth. The broadly defined monetary growth measure, M2, has grown by over 7% during the last year while the very broad measure, M3, has increased by over 10%. These growth rates have not been experienced since the 1980s. Although the Asian-induced slowdown has tempered the U.S. economy and reduced concern about near-term inflation, the money growth numbers could be a harbinger of serious inflation problems ahead.
U.S. Savings Rate Heading to Zero. The Economist (August 8, 1998) reported that the Department of Commerce’s recently released revisions to the national-income accounts indicate that Americans saved only 0.6% of personal disposable income in the second quarter of 1998. This is down from over 3% in 1996. The monthly estimate for June was 0.2%. Some economists argue that the surging stock market has created an enormous "wealth effect" that is bolstering consumption. They worry that a weaker stock market could cause consumers to drastically slow spending.
Week of July 26, 1998
Electronic Security Trading Growth Challenges Floor Traders. Business Week (August 10, 1998, pp.66-72) reported that electronic trading is booming the world over. In one exchange after another, electronic trading is augmenting or replacing floor traders. One driving force behind this movement is the explosive growth of Internet-based security trading systems. The number of online accounts is estimated to have grown from only 1.5 million in 1996 to 5.3 million at year-end 1998. All the major exchanges are feeling the impact of the new technologies. With regulators generally encouraging the move to electronics, the pressure for exchange mergers and movement from floor trading to computerized trading is likely to accelerate.
Wall Street IPO Filing Penalties Under Review. The Wall Street Journal (July 31, 1998, pp. C1-C15) reported that a number of Wall Street brokerage firms are attempting to penalize brokers who allow their clients to sell new issues shortly after the initial public offering (IPO). Some analysts argue that the penalties represent market manipulation designed to keep the price of new issues artificially high.
Small Cap Stocks in Excess Supply. The Wall Street Journal (July 31, 1998, p. C1) reported that a study by Needham & Co. suggests that the growing supply of small-cap company stocks relative to high-cap stocks may account for the poor performance of the small-cap group. The substantial increase in venture capital financing leading to initial public offerings during the last ten years may be upsetting the supply/demand balance between low- and high-cap stocks.
Smart Card Group Created. The Wall Street Journal (July 30,1998, p. B6) reported that American Express Co. and Visa International have developed a joint venture to create a world-wide standard for smart cards. Smart cards contain electronic chips which allow them to act as electronic purses, information storage devises, telephone cards, and debit, credit, and Internet settlement devises. Experiments are underway to allow consumers to load "cash" into a smart card over in Internet connection. The joint venture is likely to speed the pace of develop of the cards.
Nifty Fifty of the Early 1970s Even Niftier Today. The Wall Street Journal (July 27, 1998, pp. C1-C4) reports that the trailing price earnings (P/E) ratios of the top ten large-cap companies today is well above the peak hit in December 1972. The 1972 peak witnessed the end of a bull market as earnings of the high-cap group weakened. Some analysts are looking at today’s record high valuations for the high-cap group and see a parallel to the earlier period. They don’t think today’s valuations can be sustained. Even the broader market average’s trailing P/E of the S&P 500 at 18.4 in December 1972 has skyrocketed to 28.1 in July 1998.
Week of July 19, 1998
Jett Cleared of Securities Fraud in Kidder, Peabody & Co. Failure. The Wall Street Journal (July 22, 1998, p. C1) reported that Joseph Jett, alleged to have created $348 million of bogus trading profits while serving in Kidder’s government trading division, was cleared of securities fraud. Jett was ordered to pay a fine and disgorge over $8 million in alleged false profits. Jett’s alleged trading activities resulted in losses of over $100 million at Kidder and paved the way for the sale of the firm to Paine-Webber Group.
Traveler’s Group Admitted to Leak of Merger Discussions. The Wall Street Journal (July 22, 1998, p. C1) reported that its Salomon Smith Barney Inc. subsidiary mistakenly leaked information about ongoing merger talks between HBO and McKesson Corp. The result was that HBO stock plummeted, ending the discussions. The mistake is said to be a serious blemish to the ongoing efforts to merge Salomon and Smith Barney.
SunTrust Acquires Crestar Financial. The Wall Street Journal (July 21, 1998) reported that SunTrust Banks agreed to acquire Crestar Financial Corp. in a deal valued at nearly $10 billion. The combination will yield the U.S.’s 10th largest bank with $88 billion in assets and nearly 1,100 branches in six Southeast states and the District of Columbia.
IPO Roll-ups Have Checked History. Business Week (Aug. 3, 1998, pp. 72-73) reported that IPO roll-ups, a transaction which creates an initial public offering of a shell company that purchases existing firms in similar industries to benefit from consolidation, have had only marginal success. The economics of the Roll-up is to create economies of scale and greater market reach in fragmented industries. The success of these transactions to date, as reported by Business Week, however, is spotty
Internet Stocks Have People Wondering. The Economist (July 25, 1998, pp. 61-62) reported that stocks of many initial public offerings of Internet-related companies have reached the stratosphere. A recent offering of Broadcast.com, a money losing company which sends audio and video images over the Internet, went public in July at $18 a share and closed at $62.75 at the end of the next day. Its market value reached $1 billion. Yahoo, the Internet’s most popular search engine, is estimated to have a market value of nearly $9 billion with revenue of only $165 million.
Week of July 12, 1998
NYSE Proposes Circuit Breaker that Favors Price Increases. The Wall Street Journal (July 16, 1998, p. C1) reported that the New York Stock Exchange is considering increasing the current 50-point collar. The new proposed "asymmetric collar" would permit a larger percentage gain in the Dow Jones Industrial Average than a decline. The current collar has come under criticism since at current stock high price levels the trading restriction kicks in with only a .5% change in the average. When it was first implemented, the percentage change was over 2%. The asymmetric proposal responds to professionals who believe that sharp drops in stock prices are more harmful than increases.
CBOE and Pacific Exchange Discuss Merger. The Wall Street Journal (July 13, 1998, p. A3) reported that the Chicago Board Option Exchange and Pacific Exchange, both major markets for stock options, are considering a merger. This follows the announcement that the Chicago Board of Trade and Chicago Mercantile Exchange are discussing merging their back offices. Consolidation among security exchanges around the world is being driven by improved communication and computer technologies that are driving brokerage rates down.
Large Companies Use Portfolio Theory to Manage Property and Casualty Risks. The Economist (July 18, 1998, pp. 63-64) reported that a growing number of large companies have set up captive self-insurance companies to manage many property and casualty (P&C) risks. A large company can take a portfolio risk-management approach to the diversification of these risks. With many P&C companies unwilling to insure new risks, they face losing more business to the over 4,000 captive companies now in existence.
New Default Risk Derivatives a Growth Market. The Economist (July 18, 1998, p. 67) reported that after years of relative quiet on the new derivative front, the "default swap" market is booming. $170 billion in default swap contracts were written in 1997. Default swaps provide insurance against default losses by a borrower. Many of the contracts are written by commercial banks that desire to earn fees to cover default risk, but not put assets on their balance sheet. Critics wonder if many of the issuing banks can stand up to the risks they are absorbing in writing the contracts. The Asian crisis has helped to stimulate the market for default swaps.
U.S. Investment May be Grossly Understated. The Economist (July 18, 1998, p. 68) reported that if traditional measures of investment as a percentage of gross domestic product (GDP) are adjusted to include investments in education, research and development, consumer durables and military spending, the United States' investment rate as a percentage of GDP more than doubles. The adjustment, based on a study by Milka Kirova and Robert Lipsey, leaves the U.S. just short of the investment leader, Japan. With knowledge-based businesses becoming so important in the world economy, adjustments of the type suggested by the authors make some sense. They also provide support for the fact that the U.S. growth rate has exceeded the world average for rich countries in this decade despite the relatively weak investment rates as measured by the traditional approach.
Some Credit Card Issuers Question Value of VISA and MasterCard Affiliation. Business Week (July 27, 1998, pp. 64-65) reported that a number of large credit card issuers are questioning the value of their affiliation with VISA and MasterCard in favor of their own brands. The top five credit card issuers have 52% of the market. These firms claim they get little benefit from the franchise compared to smaller issuers. The biggest values of the franchise names stem from their huge advertising budgets and worldwide merchant acceptance. With competition so strong, the large issuers are looking for new ways to differentiate their products. This means using their brand names in favor of VISA and MasterCard.
Week of July 5, 1998
SEC Plans to Increase Soft Dollar Disclosure. The Wall Street Journal (July 10,1998, p. A2) reported that the U.S. Securities and Exchange Commission has been looking at disclosures by investment advisors receiving soft dollar benefits from security brokerage firms. Soft dollar benefits are generally allocated to investment advisors who steer business to a particular firm. Soft dollar benefits are to be used to benefit the ultimate investor, although cases of soft dollars being used to benefit only an advisor without disclosure to the investor are well known. The SEC wants to expose this activity.
Nasdaq Dealers and Traders Face Civil Charges by SEC over Alleged Trading Violations. The Wall Street Journal (July 9, 1998, p. C1) reported that the U.S. Security and Exchange Commission is preparing civil charges related to 1994 findings that dealers and traders had colluded on prices. Currently, a number of Wall Street's largest security firms are holding talks with the SEC to settle the cases.
U.S. Treasury to Offer Inflation-indexed Savings Bonds. The Wall Street Journal (July 8, 1998, p. C28) reported that the U.S. Treasury plans to offer savings bonds whose interest is adjusted for inflation in denominations as low as $50 and as high as $10,000. The Treasury offered its first inflation-adjusted bonds with a $50 billion sale of five-year, ten-year, and thirty-year bonds in January 1997.
GE Capital Takes on Europe. Business Week (July 20, 1998, pp. 50-51) reported that GE Capital has made a significant commitment to Europe with over 100 acquisitions in twenty-one countries. With European financial institution prices low by U.S. standards in the early 1990s, GE moved quickly to buy firms in anticipation of the unification of financial services in Europe. With over $30 billion in assets and over 20 financial businesses, GE Capital has become one of Europe's largest nonbank financial institutions.
Salomon Brothers Closes Bond Arbitrage Desk. The Economist (July 11, 1998, pp. 74-75) reported that Salomon Brothers, a recent acquisition of Travelers, the financial conglomerate, has closed its once famous bond-arbitrage desk. Salomon was a leader in bond arbitrage. Bond arbitrage involves buying and selling bonds apparently mispriced in relation to other assets. The decision to drop the activity was rationalized on the basis that arbitrage is riskier and more volatile.
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