Time to ask some questions of the behemoth banks

DID anyone say unmanageable? That's the flip side of the "big is best" notion that has driven banking and asset management mergers over the past 10 years.

Bundling these under one roof was supposed to create economies of scale, as well as a business that offset volatile investment bank earnings with stable (and rising) asset management ones. That has certainly been the case at Credit Suisse and UBS, the two Swiss behemoths that report results this week.

This idea looked fine when markets were going up. Now they aren't, tensions are emerging. Investment banking is in the doldrums.

Asset management businesses are making less money than they were.

Moreover, the combination of these two very different business lines carries reputational risks. Just look at the spat over Hewlett- Packard's merger with Compaq: Walter Hewlett, the dissident family director, claimed that Deutsche's commercial bankers induced its asset managers to vote for the deal.

The problem for monster banks is how to manage themselves so that the benefits of size outweigh the costs. Otherwise, they risk incurring the wrath of regulators, investors and clients.

The banks say their Chinese walls are rock solid.

But this creates a paradox.

The stronger the walls, the less advantage there is in having all these businesses under the same roof. They cannot then cross- fertilise.

Credit Suisse and UBS strenuously argue there is no alternative to the universal banking model. And investors have not even seriously questioned its merits.

This week would be a good time for them to start.

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