Finally, the Price Tag of Financial Reform for Banks
Whether the financial reform bill gets done before July 4th does not change its reality: financial reform will cost banks money.
I’ve been searching for a price tag for banks from financial reform and I’ve found bits and pieces of cost estimates. Yes, we know the too-big-to-fail fund will cost $19 billion, but what about financial reform in its entirety? How much will that cost?
Wait no longer. Citigroup has actually come up with a number, and it was buried in a Wall Street Journal story this morning:
Inside most banks, the mood already has shifted to assessing how much revenue and earnings are likely to evaporate if the bill becomes law—and how to make up for the forgone money. Keith Horowitz, an analyst at Citigroup Inc., estimated the legislation would reduce annual earnings per share for big U.S. banks by 6%, down from his previous estimate of 11%.“The rules did not include some of the more worrisome potential outcomes that could severely impact bank profitability or force a new wave of capital raises,” Mr. Horowitz wrote in a note to bank-stock investors.
While 6% is nothing to sneeze at, it is interesting to note that earnings at US banks have come way down. For example, the nearly 8,000 FDIC-insured banks in the US turned in slightly less than $17 billion of net operating income in the first quarter. That compares to more than $35 billion of net operating income for the same quarter in 2007.
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