Correction Appended

After a calamitous weekend and precipitous dive on Wall Street, the impact of the disappearance of three investment banks and tottering insurance giant AIG began to be felt in earnest among financial services lobbyists.

With Lehman Brothers declaring bankruptcy, Merrill Lynch taking a buyout from Bank of America and JP Morgan’s March firesale purchase of Bear Stearns, there has been a radical reordering of the financial services marketplace.

But that’s not necessarily all bad news for K Street.

“Talk about a sea change that will be coming in terms of financial regulation,” said Jeff Peck of Johnson, Madigan, Peck, Boland & Stewart.

“No question there is a fundamental change on its way, and there will be a lot of work in this area in 2009 — regardless of who is president.”

While there may be some short-term disruptions in personnel and political action committees, all the changes will result in a new debate about regulatory reform of Wall Street, echoed an in-house lobbyist with a banking holding company.

“I don’t care how bad off things are with the banks, they’re going to have a voice in that debate and that comes from K Street,” the lobbyist said.

“K Street is going to do well through Wall Street in good times and bad. The smarter [financial] firms realize they’ve got very little credibility, and the New York view is that money always wins, so they’ll put the money in.”

The financial turmoil comes as many in Washington, D.C., are still feeling the reverberations of mortgage giants Fannie Mae and Freddie Mac, which last week ceased all lobbying activity.

So far, no word on when the two firms’ hordes of outside consultants would be let go.

But it appears that the duo’s top in-house lobbyists are staying put, at least in the short term.

Tim McBride, former head of DaimlerChrysler’s government affairs department, and Cory Alexander, former chief of staff to then-House Minority Whip Steny Hoyer (D-Md.), are still on Freddie’s payroll.

Top lobbyist Duane Duncan still remains at the helm at Fannie Mae.

There will be plenty of casualties, of course, and not just among Fannie and Freddie’s large in-house lobby shops, or the dozens of outside consultants who service them or lobbied for Merrill Lynch, Lehman Brothers or Bear Stearns.

Perhaps the biggest hit to Wall Street’s K Street presence will come to the numerous trade associations that represent the industry. As firms consolidate or go out of business, those association dues — sometimes worth millions of dollars a year — dry up.

“The implications of what’s going on with these companies will have a significant impact on their trade associations going forward,” said one in-house financial services industry lobbyist, citing such groups as the Securities Industry and Financial Markets Association, Mortgage Bankers Association and the Investment Company Institute, to name a few.

Scott Barnhart of Jenkins Hill Group agrees.

“Securities folks just lost two big entities,” said Barnhart, who represents the American Bankers Association and Wachovia. “I suspect that has a pretty dramatic effect on the bottom line. Along those lines people are probably very anxious and nervous, both with the trade groups and those that represent individual companies.”

SIFMA, for one, counted all three — Bear Stearns, Lehman Brothers and Merrill Lynch — as members. And since SIFMA dues are upward of $1.5 million for large financial institutions, the effect will be felt immediately.

“The continued challenging climate of the financial markets is proving difficult for market participants, including SIFMA’s 600-plus member firms,” Michael Paese of SIFMA said in a statement. “SIFMA is, as always, committed to representing our members interests as they navigate through these volatile conditions.”

The Mortgage Bankers Association, which has been hit hard in recent months by the housing credit crunch, has watched its membership slide from 3,000 to 2,400 in the past 18 months. It will likely lose two more members in Lehman Brothers and Merrill Lynch.

“The industry is cyclical, and this is something we’ve been planning for as we’ve been going forward,” said Cheryl Crispen, MBA’s senior vice president of communications. As for the future, she added, “I don’t know, and I wouldn’t want to speculate on what may or may not happen.”

As companies like Lehman Brothers and Merrill Lynch work through the process of winding down individual businesses, the future of their in-house lobbying teams is unclear. That could flood the market with top blue-chip lobbyists, who have spent the last decade or more at the investment firms.

Lehman Brothers, for one, has kept a small in-house team, relying primarily on Judith Winchester, a former special assistant for legislation at the Department of Housing and Urban Development, for more than a decade. Lehman Brothers, which filed for bankruptcy, reported spending $430,000 for the first half of this year on federal lobbying, sending $20,000 of that to DLA Piper and $40,000 to its longtime outside consultant, O’Neill, Athy & Casey.

Neither Winchester nor lobbyists at either outside firm returned calls seeking comment.

Bank of America, which announced its intention to acquire Merrill Lynch on Sunday, is already a huge player downtown but may actually add lobbyists as its portfolio of businesses expands.

Two sources familiar with Bank of America said the companies, BOA and Merrill Lynch, must operate independently until a merger is finalized, so it’s too early to discuss what a combined team would look like.

Still several financial services lobbyists said the expectation on K Street was that there might be a small amount of consolidation, but many of Merrill Lynch’s lobbyists would continue to be retained.

“Much of Merrill is going to continue as part of Bank of America,” Peck said. “I don’t suspect there is going to be any real changes. These kinds of deals take a fair amount of time before they happen.

“When you have a combination of two organizations with complimentary versus overlapping businesses, there may not have to be many changes down here,” added Peck, who counts Fannie Mae and Merrill Lynch as clients.

Former Direct Marketing Association Executive Vice President Steve Berry has headed up Merrill Lynch’s in-house operation since March.

In addition to Berry, the firm has counted on former state department official Margaret Tutwiler and Louis Constantino, among others.

The financial services firm spent $2.2 million during the first six months of 2008, with lobby shops like Washington Council Ernst & Young and DLA Piper on retainer.

Bear Stearns’ lobbying operation is one that has already undergone major renovation since JP Morgan announced its buyout earlier this year. Since then, the investment bank has shuttered its lobbying team, terminating longtime head of government affairs Mary Lynn O’Neill and laying off outside consultants Tom Quinn of Venable and John Collins at Steptoe & Johnson.

The move wasn’t surprising to Quinn.

“Bear always had sort of a lean operation,” he said.

Many contract lobbyists say they are not sure of what the long-term ramifications might be on their own business.

Solo lobbyists, who rely on one or two big financial services clients, could be the most deeply affected.

“It’s the small boutique one-man shops that are really going to take the kick,” said Jim Free of the Smith-Free Group.

Ken Kies, managing director of the Federal Policy Group, who represents such clients as the American Council of Life Insurers, is also taking stock of the future. “I think everybody who’s in this business is looking around and going, ‘This is pretty serious stuff,’” Kies said.

Yet, Kies and his colleagues around town see a reason to be optimistic about their own bottom lines.

“If you’re in the tax area we’re looking at next year as the biggest year in terms of tax legislation in decades,” he said. “People really can’t afford to sit this one out. There’s an old saying: If you don’t have a seat at the table, then you’re on the menu.”

Any sweeping changes to how Congress watches over Wall Street likely will take time, lobbyists predict.

“There is a lot of wreckage to sift through,” said Jeff Tassey, a financial services lobbyist at Tassey & Associates. “I don’t think [Congress] will be stopping to do single measures and so forth until they really have to take a comprehensive, wholistic approach.

Correction: Sept. 19, 2008

The article reversed the names of the in-house lobbyists for Fannie Mae and Freddie Mac. Tim McBride is senior vice president of government and industry relations at Freddie Mac. Duane Duncan is senior vice president of government and industry relations at Fannie Mae.