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What's a Poor Bank to Do?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- The banking industry has had a tough time of late. Wall Street is crammed with protesters challenging high wages paid to bank executives. Threats of default by Greece have wreaked havoc with the stock prices of banks that invested in European debt.

UBS (UBS - Get Report) lost its equities chief executives after revelations that a single UBS trader allegedly racked up $2.3 billion in losses through what the bank called unauthorized trades. A series of lawsuits has called into question the legitimacy of various practices that banks have reportedly used to maximize profits.

Now, proposed regulations to implement the so-called "Volcker Rule" of the Dodd-Frank Wall Street Reform and Consumer Protection Act, if adopted, will significantly restrict banks' ability to engage in proprietary investing, i.e., investing their own funds to make profits and, thereby, putting deposits at risk. Yet, despite it all, shareholders still expect banks to generate substantial profits, and stock prices tumble when those expectations aren't met.

Despite the challenges banks face, there are still many ways they can protect their profits even as they struggle to satisfy new restrictions imposed by regulators and the courts. Here are some examples:

1. Adjust foreign currency exchanges. The Wall Street Journal reported last week that Bank of New York Mellon (BK - Get Report) was sued by both New York State and the S. Department of Justice for allegedly charging state and public pension funds, universities, federally insured banks, and other private companies fraudulently high rates for foreign currency exchange transactions. BNY Mellon is in for a protracted fight. However, does that mean banks can't profit from foreign currency exchange transactions? Not at all -- it just means they'll have to be careful to charge reasonable exchange rates in the process.

2. Be transparent about staple financing. Barclays (BCS) and Del Monte (DLM) recently agreed to pay almost $90 million to settle a shareholder lawsuit that raised conflict-of-interest concerns about "staple financing," a formerly standard practice in which a bank "staples" potential financing terms into a proposed deal to be offered to buyers on behalf of a seller so that the bank is effectively advising both parties to the deal. The case has made banks nervous about staple financing (and even about providing services to both sides of a merger and acquisition), but they may be getting anxious too soon. The Delaware court presiding over the suit reportedly said that Barclays went beyond standard practices by neglecting to disclose some of its actions to Del Monte. With full disclosure and informed consent of both buyer and seller, banks may still be able to broker mergers and acquisitions while profiting from "stapled" financing deals.
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