Wall Street's blowout quarter for big bank earnings comes in the shadow of a daunting specter—An onslaught of potential Washington regulation that could put a major dent in profits.
Recent days have seen an increased likelihood that banks will have to carry even more capital on their balance sheets than originally thought, and some executives and analysts are worried.
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JPMorgan Chase Chairman and CEO Jamie Dimon and other company officials warned of the looming regulatory crackdown during the company's earnings call Monday:
Marianne Lake, chief financial officer: "… we will take appropriate actions to reduce our leverage assets … for example, re-pricing or restructuring of commitments or unwinding certain derivative positions."
Dimon: "If you have a world where some businesses have to have twice as much capital as other companies, that over time can create huge competitive disadvantages. I don't know of any industry in America who would want to compete globally on that basis. We have an interest in a safe and sound system so we're not against a leverage ratio but we would be – we're not for a largely unbalanced competitive playing field. So put aside, that regulators know that. They're trying to – we thought that the point of Basel and all that is to harmonize these kind of things.
And if you ask about it, we show here, and Marianne just shows it, anything which is a low RWA asset (risk weighted asset), including HQLA (high quality liquid asset), revolvers, certain types of derivatives, those things obviously we will look at a little bit differently because there's leverage asset ratio. And we won't have to do it by business yet. We'll give you more detail later.
Like even Marianne had mentioned that we take huge deposits in from countries and from money funds, et cetera, that we may not take in because you can't afford capital against a deposit, $1B you get in from a money fund that you park at the Fed for 25 bps, you pay the FDIC 10 bps, you pay the client 5 or 6 or 7 bps and you've got to put 6% capital. against it. There are a whole bunch of things we've got to figure out how we're going to do it.
… If it's what we call a big wholesale short-term deposit, you're absolutely correct. We could probably restrict that over time." (Transcript courtesy of Dick Bove, vice president of equity research at Rafferty Capital Management.)
Dimon's comments came in the wake of fairly solid earnings. The company reported profit of $1.60 a share, a 31 percent increase and 16 cents ahead of the Wall Street view.