Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


Will financial reform help create a safer banking system? Last week I said that a key sign would be falling profits, since safer banks ought to be less profitable banks. Unfortunately, banks seem pretty bullish about profits, a sign they don’t really think all the new regulations will change their business practices much.

Today, the Wall Street Journal begs to differ:

Investor presentations by top bank executives in London last week, combined with increasingly dour projections for the third quarter that ended Thursday, are crystallizing the challenges banks face. “The business models on the Street are going through dramatic changes,” says Clayton Rose, professor of management practice at Harvard Business School, based on the most drastic shifts in the “political, regulatory, and economic environment since the 1930s in the financial industry.”

….Return on average equity for the major investment banks, a key barometer of profitability, could be halved from the 20% range a few years ago, according to SNL Financial. And costs are rising, leading to expected waves of industry job cuts.

Morgan Stanley and Goldman, the two major firms that derive most of their earnings power from Wall Street businesses, are expected to earn about $12.1 billion in profits this year — 23% less than in 2006, their peak earnings year, according to Thomson Reuters. Their revenues are still largely dependent on trading, with about 60% of 2009 and estimated 2010 revenues coming from trading, according to Sanford Bernstein.

It’s too early to know for sure how this is going to turn out, so for now consider this just another data point. On the one hand, a big part of this anticipated profit crunch is due to lower volumes of stock trading, something that wasn’t really affected by the financial reform bill. So that doesn’t mean much. On the other hand, the Journal story suggests that higher capital requirements, curbs on prop trading, and derivatives rules are also a big part. If that’s the case, maybe the new rules will really have some bite. Stay tuned.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate