Obama Reform Might Drag Out Recovery in U.S. Banks' ROE - Blackmont

Jun.17.09 | About: SPDR S&P (KBE)

Page four of Barack Obama's 85-page financial regulation reform document has left Brad Smith concerned that U.S. financial institutions will have an even tougher time gaining back valuable return-on-assets and return-on-equity.

The Blackmont Capital analyst said:

Specifically, it notes that a major cause of the current crisis can be attributed to insufficient capital requirements being enforced, particularly with respect to trading securities and off-balance sheet exposures.

If the rest of the document follows a similar bent, investors in US institutions are likely to conclude (correctly) that ROA and ROE levels will be in decline for sometime.

In essence, Mr. Smith said Mr. Obama's aforementioned proposals will mean the future operating cost of manufacturing and distributing financial products in the U.S. will rise and the amount of capital required to support operations will be higher.

He wrote:

From a practical perspective, this overview implies that the eventual recovery in profit and ROE amongst affected institutions as the inevitable economic recovery unfolds will likely be more muted relative to non-regulated industries than in the past.