The last generation of Wall Street was dominated by 800-lb gorillas like Goldman, Citi and Morgan Stanley, the next looks to be the age of smaller, nimbler beasts. The benefits of being small are starting to appear on Wall Street thanks to low-cost technology, which has made it easier than ever before to monitor risk, track performance, access information and serve clients.
So-called “boutique” investment banks have gained a much larger share of the lucrative business of advising on mergers and acquisitions (M&A) since the financial crisis (see chart) and are gaining other footholds. Their flourishing has put paid to the belief that consolidation was inevitable as one institution after another was crushed or absorbed by bigger rivals. The giants who offered advice, credit, trading, research and underwriting on top of the technological capacity to track what was going on used to seem unstoppable. But technology now comes cheap and breadth is as likely to result in fines as in synergies. Minnows, often still under the management of a charismatic founder, are snaffling the business that once belonged by right to Wall Street’s titans.