NEW YORK ( TheStreet) -- The intense regulatory focus on "Too Big to Fail" banks should continue to create opportunities for smaller players and non-banks, according to KBW analysts.
"The implementation of the Volcker rule is likely to be tougher than was thought just a few months ago, the push to move derivatives to exchanges will accelerate, and the continued implementation of higher capital standards for large banks will move merchant banking activities to non-banks, in our view," the analysts said.
The argument to break up big banks has been gaining favor in Washington amid concerns of an ongoing perception in the market of an implied government guarantee for the nation's largest lenders. Trading losses at JPMorgan Chase (JPM) amid regulatory and risk-management lapses have also raised concerns that some firms may be "too big to manage" and "too big to regulate."
That has stepped up regulatory pressure to toughen the Volcker rule, which is intended to limit risk by banning banks from proprietary trading and moving derivatives trading to exchanges. The Volcker Rule is meant to contain damage to the wider financial system from a trading firm's failure.While the analysts do not believe there will be new legislation to break up the banks, they expect the largest banks, particularly those designated to be globally significant, to be in for a "long period of increased regulation, limited profitability and shrinkage." Increased regulation has, however, created opportunities for smaller firms, the analysts note. The regulation and litigation surrounding mortgages, for instance, has allowed companies such as Ocwen Financial (OCN) to grow market share. Similarly, implementation of consumer banking laws in through the Dodd-Frank bank reform legislation has been cumbersome for the large banks, but has allowed lenders such as Discover Financial Services (DFS)and Signature Bank (SBNY) to gain market share. In the capital markets space, KBW expects alternative managers such as Blackstone (BX), Carlyle Group (CG), Fortress Investment Group (FIG) and private equity firm KKR (KKR), to benefit in the new regulatory landscape. Exchanges such as Intercontinental Exchange (ICE) and brokers Evercore Partners (EVR) and Raymond James Financial (RJF) are also likely to emerge as winners. -- Written by Shanthi Bharatwaj New York. >Contact by Email. Follow @shavenk
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV