Is it time to bid goodbye to investment banks and say hello to universal banks?

With the investment banking sector looking shaky, many investors are taking a closer look at the prospects of universal banks. And to make matters worst , even employees of investment banking firms are reconsidering their career options in favor of banks with a balance sheet.

When Bear Stearns announced that it agreed to the emergency bailout by rival J.P. Morgan Chase and the Federal Reserve, the financial world again went into panic mode, expecting another catastrophe in the offing. And perhaps, we may consider a report by eFinancialCareers.com as ominous, which disclosed about three months prior to the sale of Bear Stearns that the firm's executives and front office managers have paid themselves hefty bonuses.

Most analysts predict that where Bear went, it is more likely that other broker-dealers will follow. And according to them that most probably Lehman, whose stock is sliding as more and more investors are pulling out, would be next in line. In fact, Lehman had already secured a US$2-billion credit facility from 40 banks led again by J.P. Morgan Chase and Citigroup.

In a related development, Lehman employees too are getting their money out of the investment bank, closing their accounts with the private wealth division, and selling all the stocks they can sell, according to a report in eFinancialCareers.com.

The Wall Street Journal points out that Lehman, together with other investment banks like Goldman Sachs, Morgan Stanley and Merrill Lynch, are all highly leveraged. Lehman's leverage ratio at the end of 2007 was 30.7:1, while Morgan Stanley was leveraged 32.6:1, Goldman Sachs at 26.2:1, and Merrill Lynch at 27.8:1. Most of them are expected to write down in the first quarter. By comparison, Bear Stearns was leveraged at 32.8:1, the most highly leveraged of the lot.

The other troubled investment bank to avoid for the foreseeable future is probably Dresdner, which is apparently being for sale by owner Allianz.

Investment banking is a confidence trick – they borrow money from the wholesale markets, buy assets with it, package them up and sell them on. But when the investment bank stops lending that money they’ll go under very quickly, as Bear Stearns has just proved.

On the other hand, universal banks with very good balance sheets are starting to look like the better option in this time of the crisis. Right now it seems that you're better off putting your money in a universal bank, if you are an investor, or working for the latter if you're an employee. Not unlike with investment banks, they have balance sheets and deposits that they can call on.

However, not every bank with a balance sheet is looking good. UBS, Societe Generale and Citigroup are looking very bad indeed after their billions of dollar write offs in connection to their subprime debacles.

With regard to Societe Generale, aside from the subprime write offs, the firm has to face also its US$7-billion losses in the European futures market caused allegedly by a rogue trader.

Meanwhile, thanks for the petro dollars coming in from the Middle East that bailed out Citigroup, and would most probabaly bail out other ailing banks as well.