Dumb Analysis of the Day: Bank Profits May Drop on Regulations
This has to be the single dumbest thing I have read in months: Investment Bank Profits May Drop on Regulations, JPMorgan Says. (Note: I am referencing the analyst report, not the Bloomberg story)
Here’s a news flash: With the least amount of regulatory oversight in generations in the 1990s and 2000s, bank profits were less than zero — indeed, their losses were so great that many of the biggest financial institutions bankrupted themselves.
When you are an insolvent institution, your profits are non-existent.
The collapse of the banking system reveals the sector to be run by inept clowns and misfits. They require oversight as they have proven beyond any doubt they are incapable of handling themselves, managing risk, to the point where they blew themselves up.
Bloomberg:
“Goldman Sachs Group Inc., Barclays Plc and Deutsche Bank AG’s investment banking profit may drop by a third as governments step up regulation of the industry, analysts at JPMorgan Chase & Co. said.
Deutsche Bank’s return on equity will probably tumble the most among the world’s largest investment banks, falling to 6.7 percent in 2011 from 10 percent today, JPMorgan analysts led by London-based Kian Abouhossein wrote in a note to clients. New York-based Goldman Sachs’s return on equity will decline by 4.4 percentage points and Barclays’ by 4.3 points, the analysts said.
Governments around the world are stepping up oversight of banks in the wake of the worst financial crisis in seven decades. Forcing banks to hold more capital, and moving more derivatives trading onto exchanges are among the eight regulatory proposals the JPMorgan analysts examined.”
Banks were allowed to set their own leverage, determine their own risk levels, and control their own fate more than anytime in history. And quite bluntly, they blew it.
The JP Morgan analyst is saying that more regulation would make the banks less profitable. Stop and consider the simple fact that with much less regulation, the bank profits were less than zero — their losses were so massive they bankrupted themselves.
How does more regulation make profits somehow amount to less than zero, less than bankrupt?
Unless, of course, the analyst believes we should consider engaging in privatized gains and socialized losses. Then, of course, his thesis makes sense.
But short of another trillion dollar bailout, WTF is this guy thinking?
The ineptness of bankers demands that taxpayers protect themselves another costly systemic debacle — phantom, non-existent bank profits be damned . . .
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Source:
Investment Bank Profits May Drop on Regulations, JPMorgan Says
Andrew MacAskill
Sept. 9 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azenYy1dDecg
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September 10th, 2009 at 7:44 am
Glad to see you still have those “libertarian leanings”, Ritholtz. ;)
September 10th, 2009 at 8:04 am
As long as they drop less than expected, we’ll be fine.
September 10th, 2009 at 8:25 am
I thought Investment Banks were dinosaurs – that they all evolved into commercial, deposit-taking institutions in order to take advantage of free government money.
September 10th, 2009 at 8:26 am
Double or nothing?
September 10th, 2009 at 8:46 am
Get ready, IMHO, in q3 they will do the “Final Writedown”, there pps is way up, mood is better, so now they throw out what they don’t want, keep what they feel will recover…………it’s not about companies or profits it’s stock price, come on AIG is a good buy price has gone up in last month, they must be “turning it around”, getting there mojo back, lords of discipline,
September 10th, 2009 at 9:05 am
of course they don’t want to be policed. that way they can get their large bonuses and bailouts when the mess it up. again. if some one was actually policing them then heaven forbid they would actually have to follow the rules and take responsibility for their actions. and we can’t have that. thats just for the ‘little’ people.
September 10th, 2009 at 9:18 am
BR says-
“The collapse of the banking system reveals the sector to be run by inept clowns and misfits.’
pretty much it-
except i might add- if anyone investigates as they should- liars and thieves-
there was certainly fraud committed up and down the food chain- if anyone cared to look
September 10th, 2009 at 9:22 am
by the way- CNBC Sucks-
i would have hoped that you were able to put together a better team on the TBP Fantasy Football League-
there are always free agents and trades you can consider- so hope is not lost- maybe with a bit of luck you may win a few games-
better than winless i guess :-)
September 10th, 2009 at 9:27 am
more banksters etc
http://economistsview.typepad.com/economistsview/2009/09/the-real-villains-in-the-credit-crunch.html
September 10th, 2009 at 9:34 am
“The ineptness of bankers demands tha taxpayers protect themselves another costly systemic debacle — phantom, non- existent bank profits be damned . .”
Is this taxpayers protecting themselves, or taxpayers forcing banks to do something which we think will be less costly for taxpayers. An action of self-protecting by taxpayers would ignore the banks and try to create relief from this type of shock. What is being done now is to protect banks from themselves.
Why inobody is trying to protect everyone via antitrust law remains a mystery.
September 10th, 2009 at 9:35 am
ahab – It’s pretty rich for someone who put Donovan McNabb on waivers to talk smack to The Great CNBC Sucks, but I will let it go because you are one of my favorites on this blog. I will say though that given the fact that you are starting the likes of Cedric Benson and Roy Williams, Libertarian peeps such as Mark E. Hoffer would be smart to kindly ask that you change the name of your team from “Austrians” to “Keynesians”.
September 10th, 2009 at 11:01 am
At some point these banksters need to held accountable; either by this government or the next one that follows.
September 10th, 2009 at 11:13 am
The Bloomberg article mentions Barclays, Deutsche Bank, and the Squid, . I don’t know about Barclays and DB, but the Squid has never reported a full year loss as a publiclly traded company. Ever. Including 2008.
It’s had one quarterly loss in 10 years.
September 10th, 2009 at 12:24 pm
on my way to buy a couple of pitchforks and a bundle of torches. anyone else need some?
September 10th, 2009 at 12:26 pm
@ Groty at 11:13 am
“Squid has never reported a full year loss as a publiclly traded company. Ever. Including 2008.
It’s had one quarterly loss in 10 years.”
all too reminiscent of bernie’s year-in/year-out never-lose returns?
September 10th, 2009 at 12:28 pm
And there’s the fact that most of the financial industry’s “profits” come at the expense of the overall economy. At some point they start to drag on us instead of being additive to the overall economic picture; regardless of what the very inadequate GDP calculations may lead us to believe. So with that in mind I say, great!
If their profits are limited, then fewer of our valuable resources will be squandered in that sector; not the least of which is our human capital. If we don’t find a way to get our smartest folks (all those physics and math PhDs, or instance) to put their talent to work in the more productive science fields, then we are surely doomed.
The finance industry will not power us out of our debt problems. Only productive new scientific technologies have a chance at doing that.
September 10th, 2009 at 12:31 pm
The main reg that banks fear is going back to reality – mark-to-mark!
September 10th, 2009 at 3:17 pm
The collapse of the banking system reveals the sector to be run by inept clowns and misfits.
I would categorize them more as grifters, conformist sheep and arrogant, reckless, greedy tools.
At least some of them weren’t too clueless to know the risks, they just didn’t want to rock the boat while everyone was making lots of money. If it all blows up later, who cares? Their investment of a few million in lobbyists and ‘campaign contributions’ paid off a thousandfold.
September 10th, 2009 at 10:06 pm
Technically, regulations will reduce profits, but only if you define profits as including bailouts.
September 11th, 2009 at 3:11 am
“The collapse of the banking system reveals the sector to be run by inept clowns and misfits. ”
Not true. If you’re a banker, your aim is to make a lot of money and not to take care of the banking system. The inept clowns, as you call them, managed to squeeze a lot of personal wealth out of the system while they could. [BR: I believe the phrase you are looking for is "STOLE"] It could not go on forever, of course, and it didn’t. But all the small decisions that eventually led to collapse were made individually. Their motto was: “Ask not what you can do for the banking system, ask what the banking system can do for you.” And the banking system did well for them.
It should have been the job of the regulators to prevent individual interests from overriding the system. They failed. But I don’t think many of the bank managers got foreclosed on and have to live in the gutter now that the system collapsed.
They did what they set out to do and they did it with style, so I don’t think it is fair to call them inept clowns.