The original report from Citibank (NYSE:C) in response to a proposal to limit proprietary trading from Obama was that Bank of America (NYSE:BAC) would lose about 1 to 2 percent of earnings from the event. Morgan Stanley (NYSE:MS) has now released a report stating that the fallout would be far worse than that, more than doubling their outlook over Citibank’s, to Bank of America losing potentially up to 5 percent of overall earnings if the plan is implemented.
Morgan Stanley said they see similar results with J.P. Morgan Chase (NYSE:JPM), who was also estimated to lose a similar amount by Citibank, but which Morgan Stanley says could also reach up to 5 percent in lost earnings as well.
Morgan didn’t comment on projected losses at their chief rival Goldman Sachs, which could experience a 10 percent plunge in earnings, and themselves, which had been projected to lose up to 4 percent in earnings if the proposals are put into law.
For the sake of readers, proprietary trading refers to banks using their own money to invest in a variety of financial instruments, including everything from stocks and bonds to commodities, options and derivatives, among others. The differentiator between proprietary trading and other trading is whether they use their own money or the money of their customers.
Even with these revised estimated consequences and results to large bankers, it is hard to know at this time what the real fallout could be from the Obama ban, as there has been very little in detail offered at this time from the administration, with more of a general idea and trial balloon being thrown out to get reactions before going forward.
We don’t even know if this will really gain any legs, and if it does, what the legislation would look like if it is drafted, and even then it would have to move through Congress with a possibility of huge changes and adaptations before being signed into law.
Even with all of this having an initial negative impact on the U.S. banking industry, the banks in the European Union could fare much worse, as it looks like momentum is generating support for another group of regulations that could slam the European banks much harder than their U.S. competitors.
What I don’t like about it is it seems like its being orchestrated by politicians from the various countries in efforts to keep one another from getting too big of an advantage over the other. That’s why one announcement from a country is followed by an announcement from another that is similar in scope and tone.
