NY Times: Nearly Half of Wall St. Bank Profits Are Gone

[marmar]

Nearly Half of Wall St. Bank Profits Are Gone

By LOUISE STORY
Published: June 16, 2008


Only a year ago, Wall Street reveled in an era of superlatives: record deals, record profit, record pay. But a mere 12 months later, nearly half of the profits that major banks reaped during that age of riches have vanished.

The numbers are staggering. Between early 2004 and mid-2007, a period of unprecedented wealth on Wall Street, seven of the nation’s largest financial companies earned a combined $254 billion in profits.

But since last July, those same banks — Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers, Merrill Lynch, Goldman Sachs and Morgan Stanley — have written down the value of the assets they hold by $107.2 billion, gutting their earnings and share prices. Worldwide, the reckoning totals $380 billion, much of which reflects a plunge in the value of tricky mortgage investments.

More downbeat news is expected this week, when several big banks, including the ailing Lehman Brothers, are scheduled to report results for the latest quarter. As the tally of losses keeps growing, many bank executives — and their shareholders — keep asking the same question: When will the pain end?

But the finish line just seems to keep moving further away. Even when the losses end, bank executives are looking toward a new era of lower returns, thinner profits and fewer jobs. Greater scrutiny from regulators is forcing Wall Street firms to reduce their use of leverage, or borrowed money, which had fueled profits in good times but backfired when the credit crisis struck last summer. Nearly every finance company is cutting jobs and battening down.

“They are going to have to build a new business model,” Richard X. Bove, a financial services analyst at Ladenburg Thalmann & Co., said of investment banks. “I do not believe those businesses have the ability to generate the kind of profit they did in recent years without all the leverage.” ....(more)

The complete piece is at: http://www.nytimes.com/2008/06/16/business/16earnings.html?_r=1&adxnnl=1&oref=slogin&adxnnlx=1213723308-2cADTGRCbAiY73rS7zJbKQ

[OhioChick]

1. K&R

:kick:

[Recursion]

2. It didn't "disappear" -- it was never there

This is Enron write large: banks marked down profits based on their assumption that debt was an actual asset. The profits were illusions to begin with.

[marmar]

3. True....Creative accounting.

n/t

[lovuian]

4. and again where were the regulators the Federal Reserve

the policemen gone ...

[Vilis Veritas]

6. Yep. Same thing happened to the FCC.

Didn't Michael Powell, head of FCC and son of Colin say something to the effect that "Regulation is the problem"

saddlesore...

[Fumesucker]

5. A man with a briefcase can steal more money than any man with a gun..

-Don Henley