Investment banks such as Merrill are facing a credibility crisis. They are asked to account, reason and pay for the excesses of the boom time. Merrill has already shelled out more than $100 mn in fine, others might soon follow. Add to this the lackluster equity markets and the future of investment banks is far from bright.

Just about two years ago it would have been difficult for the investment banking industry to foresee their present state of affairs. Then Wall Street firms and their star analysts were the toast of the town. The booming stock markets poured billions of dollars into the hands of investment bankers and their staff and ranks expanded to meet the demand of the markets. But today the industry is bogged down not only due to the economic slump but by a more important issue of ethics. Conflicts of interests in investment banking had been long acknowledged but nothing was done to address them. Now every accounting scandal also brings with it a misleading investment advice from Wall Street's star analysts. And regulators and investors alike are in a mood to make the guilty pay for this and permanently restructure the operations of investment banking industry if possible.

Internal e-mails at Merrill Lynch have revealed shocking information. Analysts who publicly touted a particular stock based on which millions of investors across the US made their investing decision actually called it `junk' and "worth nothing except underwriting fees". Merrill is not the only one whose analysts' recommendations have been barely exposed, as being a way to push investment-banking business. In fact almost all the big ticket names are involved in similar deliberate acts of misleading investors. US Attorney General Elliot Spitzer has decided to pursue the legal means of getting Merrill to book and secured $100 mn along with structural remedies at Merrill Lynch.

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