By Martin Hutchinson
Contributing Editor
Money Morning

It’s time to restructure the wheeler-dealers of Wall Street – the U.S. investment banks.

Just over a year ago, there were five major investment banks. Now there are only two – or none, depending on how you define the term.

While the investment banks have disappeared, most of the business they were doing is still around, and some of it is actually essential to the functioning of the U.S. and global economies. The crucial question to answer, then, is this: In five years’ time – when the present unpleasantness has sorted itself out – what form will the purveyors of those services take?

To answer that, some history is necessary.

A Look to the Past

Prior to March 2008 the five investment banks were Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), Merrill Lynch (SQD), Lehman Brothers Holdings Inc. (LEHMQ), and The Bear Stearns Cos. Inc. – roughly in that order of size, prestige and market share.

Then Bear Stearns was rescued by JPMorgan Chase & Co. (JPM), Lehman went bust, Merrill Lynch was taken over in a very expensive deal by Bank of America Corp. (BAC), and Morgan Stanley and Goldman Sachs acquired banking licenses.

Since the Glass-Steagall Act – which maintained a separation between commercial banks and their investment-banking counterparts – was abolished in 1999, two of the previous commercial banks, Citigroup Inc. (C) and JPMorgan, have been able to get into the investment banking business in a pretty big way. And going forward, BofA will now be able to do so through Merrill Lynch.

The upshot: There are now five serious investment banking operations, all with commercial banking licenses – each of which is rated as “too big to fail.”

Goldman Sachs’ first quarter earnings, released Tuesday, provide us with a picture of how successful investment banks will make money: Goldman made $1.66 billion in the first quarter, after payment of preferred stock dividends.