“Universal banks,” particularly Bank of America, Citigroup, and JPMorgan Chase, are facing a “tough long-term future because Dodd-Frank really hits them in the chest,” JMP Securities analyst David Trone told CNBC Monday.
The consumer regulatory provisions of the Dodd-Frank law “have basically turned that [banking] business into a not-for-profit,” he said. “The mortgage mess is going to last for years, and if you look at Basel 3 [international capital standards], it’s going to be very difficult for them to generate high returns. I see the universal banking model basically broken at this time.”
Trone has “neutral” ratings on Bank of America , Citigroup, and JPMorgan Chase , but he has “outperform” ratings on Morgan Stanleyand Goldman Sachs.
He says Morgan Stanley and Goldman “have a much more adaptive business model and they will be able to able to generate something in the high teens” in terms of return-on-equity (ROE). The other banks, by contrast, have ROE around 10 percent, he said.
Morgan Stanley could get a boost in reputation if it is tapped to be lead underwriter for Facebook'sinitial public offering, Trone said. As for the bank's bottom line, however, “no one deal, even the big ones, makes that big of a difference.”
“They need something good to happen on the reputational side for the market to feel good about the name,” he added. “It’s more psychological than tangible financial results.”
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Neither Trone nor his company own shares of the banks mentioned.