Pisani: Bill Could Have Been Worse

The Dodd-Frank bill (that's what it's being called, folks): bad, but it could have been worse. That's what most Wall Street traders and analysts I have spoken with this morning say about the financial regulatory reform bill passed in the wee hours of the morning.

Relief rally in banks: we have much greater clarity. Expect most bank stocks to trade up at the open.

The key takeaway: uncertainty still remains because many decisions were pushed off to the regulators, however many felt that there was hope for moderation.

1 ) Derivatives: it could have been a lot worse. It permits banks to keep derivatives desks for foreign exchange, interest rate risk, hedging for the bank's own risk, and cleared credit default swaps on investment grade entities. It requires other derivatives business to be housed in a separately capitalized subsidiary. How much capital is required remains to be seen, but at least it didn't ban the derivatives business altogether.

2) Volcker Rule: again, it could have been worse. Bars proprietary trading, but there are plenty of exemptions. Banks can invest up to 3 percent of Tier 1 capital in hedge funds and private equity funds. Again, lots of room for regulatory rulings here—regulators will define what prop trading is and how wide many exemptions will be.

3) Bureau of Consumer Financial Protection: could be ugly. One analyst called it "death by a thousand cuts." The worry: because the head of the Bureau will likely be appointed by the President and approved by the Senate, the Bureau will be under the control of politicians.

The full House will vote on the bill on Tuesday.

Meantime, it is the uncertain economic climate, not the financial regulatory reform bill, that may be more important for bank stocks.

Collins Stewart reduced estimates on Bank of America yesterday, noting "top line growth and core fundamentals are becoming more challenging for the Company."


1) The Russell indexes will rebalance at the close today. Twenty-four companies will be added to the Russell 1000 (there were only 2 last year). There will be large volume moves in a number of stocks, including Berkshire Hathaway . Several companies that are domiciled outside the United States will be allowed go into the Russell—so we will see volume in Ace , Thomson Reuters , Ingersoll Rand , Accenture, and Tyco .

2) KB Home falls 2 percent after reporting a bigger-than-expected loss (loss of $0.40 vs. loss of $0.30 consensus). Just like Lennar yesterday, KB Home saw net orders plunge 23 percent from the year-ago quarter, citing the home buyer tax credit expiration and weak economic conditions. Although home deliveries edged up 1 percent year-over-year, prices dropped 4 percent.

Backlog—an indicator of future revenues—also fell by 17 percent, while the homebuilder's cancellation rate remained high at 26 percent.

3) Despite processing fewer tax returns due to high unemployment, H&R Block Q4 earnings beat estimates($2.11 vs. $2.04 consensus) as costs fell 5 percent. Revenues at its tax preparation unit fell 5.5 percent compared to the year-ago quarter.

Due to continued uncertainty surrounding the jobs market, tax code changes, and the fact that most of its revenues come at the end of its fiscal year, the company announced it will not provide any earnings guidance for its new fiscal year.

4) Another poor IPO showing: Fabrinet priced its IPO below the expected range. The technology components maker (optical parts) price 8.5 million shares at $10 each, below the $14-$14 price range. By raising $85 million in the offering, the firm also fell short of its hopes in November to raise $150 million. The company's stock will trade on the NYSE.

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