Reply #9: Dumb Analysis of the Day: Bank Profits May Drop on Regulations (not The Onion) [View All]

[ozymandius]

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.

More at The Big Picture....