Bank Brokerage: A Bright Spot amid Subprime Woes.

It's all over the media-the subprime crisis is hitting banks hard with huge write-downs, falling stock values and significant job cuts. Is it time to panic? Industry observers don't think so. While parent banks are suffering, the effect is mostly localized in the institutional investment banking units that gambled on risky subprime mortgage investments. For bank brokerage, it's business as usual.

"As far as I can see, and I've spoken to private bankers and independent advisors as well, those advisors who are providing long-term advice are seeing no impact at all," says Alistair Jessiman, managing director of Novantas, a financial services consulting firm in New York.

GOOD ECONOMICS

Citibank's revenues from wealth management, private banking and retail bank brokerage increased significantly, from about $5 billion in 2006 to $7 billion this year, Jessiman says. "The economics of this business are very good. The market is close to its all-time high and many advisors now earn a percentage of assets under management. Wealth management is a bright spot at banks."

While reps are likely to be unaffected, the future of investment banking units is not looking nearly so rosy. Bank of America, for one, is cutting 3,000 jobs in its investment banking division. While that's bad news for those folks, Chip Roame, managing director at Tiburon Strategic Advisors in Tiburon, Calif., says the subprime debacle highlights big banks' efforts to shore up their client-facing advisory services. "If you pay attention to its strategy, it recently bought U.S. Trust, which doubled its private wealth side," he says. "Wachovia showed the same commitment to bank brokerage when it bought A.G. Edwards, which is a broader retail brokerage. The consumer orientation, not institutional, is what banks are going after."

GUILT BY ASSOCIATION

That said, bank brokerage may not be totally in the clear. Roame reckons bank brokerage may suffer some privations as a result of the huge revenue losses, but the burden will likely affect the whole bank. "Some of these firms lost money, so they have to save it in other places because a business is a zero-sum game," he says. "They'll probably cut back hiring and marketing budgets. Financial-services firms are portfolios of businesses, and the reality is that when one or two of them don't do so well, they end up robbing Peter to pay Paul. Banks won't target ...