More structural than cyclical is S&P's view of weak Wall Street earnings. Return on equity...


More structural than cyclical is S&P's view of weak Wall Street earnings. Return on equity at the major investment banks - usually 15% in okay times - was just 7% in 2011. Goldman Sachs - legendary for killing it no matter what - earned just 3.7% ROE vs. 32.7% in 2007. Regulations, higher capital requirements, and toxic attitudes attitudes towards the TBTFs are all weighing.
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Comments (23)
  • Drew Robertson
    , contributor
    Comments (373) | Send Message
     
    If the IBs had a more lenient regulatory environment, more leverage and a friendlier (or at least indifferent) public perception would it make much difference? What would the banks do with more capital to do more things? Serious question. I just don't see enough attractive lines of business to support the infrastructure built up during the mortgage and IPO booms of 97-07.
    5 Jul 2012, 03:36 PM Reply Like
  • Independent Contractor
    , contributor
    Comments (13) | Send Message
     
    Would it make much difference? Only in a negative way...digging the hole deeper.

     

    4 years and more than a trillion $ poured into these ratholes, trying in vain to bail themselves out with the public's funds. All the while, killing savers, pensioners, destroying the returns needed to fund Social Security and every other pension fund....essentially destroying what was left of America's future in this vain pursuit of pumping life into the walking dead.

     

    The game is just about up & the public has no stomach for more bailouts for the bonus boys. In fact, just the opposite. As more evidence of deep corruption and outright theft piles up, the call for arrests are growing. Where is Corzine, by the way?
    5 Jul 2012, 03:51 PM Reply Like
  • aardvark
    , contributor
    Comments (83) | Send Message
     
    It would be interesting to know in an exact way what the result of minimal interest rates has been. You make a good point of where it has impacted negatively, I wonder what the actual cost/return is?
    5 Jul 2012, 08:26 PM Reply Like
  • Adam Stockmeister
    , contributor
    Comments (282) | Send Message
     
    The real bubble lending stopped in 04-05. It always takes time to pop. Banks want to lend are forced not to by reg models and regulation. Trust me, no one like .3% interest when funding costs .13-25% short term.
    6 Jul 2012, 12:50 AM Reply Like
  • Adam Stockmeister
    , contributor
    Comments (282) | Send Message
     
    Paradox of cheap money by FICO.
    http://bit.ly/LYOhHK
    6 Jul 2012, 12:51 AM Reply Like
  • aardvark
    , contributor
    Comments (83) | Send Message
     
    Adam, thanks for the link. I'd like to see in addition how the loss of interest from savings investment compares to gains from the stock market in overall wealth and who is affected most. Pension funds and 401k's go up, conservative savings investors lose. Not sure how that comparison can be stated.
    6 Jul 2012, 09:05 AM Reply Like
  • TwistTie
    , contributor
    Comments (2429) | Send Message
     
    In the future, the IBs will have to work harder and more honestly for the money they earn.

     

    In the long run, that doesn't sound so bad.
    5 Jul 2012, 03:53 PM Reply Like
  • Director one
    , contributor
    Comments (62) | Send Message
     
    All of the above comments are right on point....to much abuse.. If 20 % of all these huge bonuses could have helped more as increasing dividends for share holders.
    5 Jul 2012, 04:39 PM Reply Like
  • Adam Stockmeister
    , contributor
    Comments (282) | Send Message
     
    Without huge bonuses up and down the ladder.. there would have been more incentive for fraud. The system hits ups and downs occasionally. Dividends are the worst return of capital to shareholders by and large
    6 Jul 2012, 12:53 AM Reply Like
  • Independent Contractor
    , contributor
    Comments (13) | Send Message
     
    There is a solution to more fraud.....more prosecutions, which is what most of us want to see anyway. So, we have to bribe these scumbag skimmers with huge bonuses to keep them honest? How's that working out for us?
    6 Jul 2012, 10:09 AM Reply Like
  • Colin Doyle
    , contributor
    Comments (775) | Send Message
     
    "Without huge bonuses up and down the ladder.. there would have been more incentive for fraud. The system hits ups and downs occasionally.

     

    "Dividends are the worst return of capital to shareholders by and large"

     

    I see you made two bold and controversial statements and gave no evidence in support of either.
    8 Jul 2012, 05:36 PM Reply Like
  • Adam Stockmeister
    , contributor
    Comments (282) | Send Message
     
    I could waste 2,500 words on each topic and you still wouldn't be convinced. It is just opinion, albeit, both have many supporters. A quick summary...

     

    All things equal, dividends are twice taxed and share buybacks are not. It is not my fault/problem some investors put money into corps with management that has poor allocation skills.

     

    Incentives. If I am a banker/broker handling billions (trillions?) of dollars you need me more than adequately incentivized. I understand the prosecution argument and I am in full agreement. I would bet less fraud takes place because of salaries being so high than without (but that is, of course, impossible to prove).

     

    happy?
    8 Jul 2012, 06:59 PM Reply Like
  • Colin Doyle
    , contributor
    Comments (775) | Send Message
     
    Yes, that was more thought-provoking.
    14 Aug 2012, 05:24 PM Reply Like
  • tonymaiuri
    , contributor
    Comment (1) | Send Message
     
    Could it be that CDO's, derivatives, and non- traditional banking banking (post Glass-Steagall repeal) revenue made up the 15%+ ROE? Perhaps, + or - 7% is the new norm.
    5 Jul 2012, 05:08 PM Reply Like
  • aardvark
    , contributor
    Comments (83) | Send Message
     
    In 2009 Bernanke called for "green shoots", Mohammed El Erian of PIMCO called for a "new normal". Figuring conservatively that 3 million people have been added to the unemployment roles at a potential loss of $30,000 per income, that's $90,000,000,000.00 taken out of the economy anually in wages alone. That doesn't count losses due to housing foreclosures, retirement benefits, health care,etc.That is where we really are.
    5 Jul 2012, 06:21 PM Reply Like
  • msphar
    , contributor
    Comments (171) | Send Message
     
    This logic dramatically understates the amount by not considering some multiplier for the number of times this money turned over during the course of the year. So as a guess, I would triple it to $270 Billion.
    It is probably larger.
    6 Jul 2012, 04:30 PM Reply Like
  • winningtrader
    , contributor
    Comments (2459) | Send Message
     
    The IB business is dead. Well, not completely but when you compare it to the period pre-2008, it is dead. The things that made money then: huge risk taking (think London Whale many times), IPO gravy train, toxic mortgage and other CDO's, structured investments, stupid clients (those are now bankrupt) and mega derivatives trades are either gone or dropped big.
    At the same time, capital and regulatory requirements have gone up (and rightly so). The banks still play the taxpayer and will continue to do so (for example, the recent transfers of huge derivatives portfolios to FDIC insured entities by MS and BAC). We will continue to see market manipulation and putting client interests behind any other interest out there but people are starting to wake up. Remember Libor, FB and now these new JP Morgan allegations?
    Earning are not going to be good. More people will lose their jobs in banking and costs will be cut to the bone. The industry is not a good place to invest and will go through significant turmoil over the next 5 years.
    5 Jul 2012, 06:27 PM Reply Like
  • Ben Bernankes friend
    , contributor
    Comments (475) | Send Message
     
    Uncle Obama doesn't want the banks to make money. He has been making that pretty evident through his policies. Sure banks should hold adequate capital, they do, but they are also in the business to make money. Like most business are.
    5 Jul 2012, 06:30 PM Reply Like
  • Independent Contractor
    , contributor
    Comments (13) | Send Message
     
    Unfortunately, with what we learn almost on a daily basis, many of the biggest banks seem to be in the business of stealing money. They sure don't make it the old fashion way. Basic banking should become a utility and interstate banking should once again be outlawed. With each generation, we seem to become collectively dumber. Then, let the IB's screw each other and take all the risks they want to....with their money.
    6 Jul 2012, 10:15 AM Reply Like
  • bigTTT
    , contributor
    Comments (259) | Send Message
     
    What is the difference between Bush and Obama. Nothing, they both don't know how to balance a simple darn checkbook! All the debate questions they ask and they don't ask that!
    5 Jul 2012, 06:41 PM Reply Like
  • dividend_growth
    , contributor
    Comments (2895) | Send Message
     
    In 1942, Wall Street resembled a ghost town, but that was when the great bull market began.
    5 Jul 2012, 09:42 PM Reply Like
  • Spencer Knight
    , contributor
    Comments (389) | Send Message
     
    This is a long term buy signal. If it is clear that IBs are struggling with profits right now, think about where the stocks will be when profits improve or surpass previous levels. Don't expect to double money in a couple years though. Buy and hold isn't dead just yet...
    6 Jul 2012, 01:48 AM Reply Like
  • howlinjags
    , contributor
    Comments (12) | Send Message
     
    the economy recovers some more and interest rates go back to 4 to 5% and the IB's will be fine.
    6 Jul 2012, 07:38 PM Reply Like
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