This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

What's a Poor Bank to Do?

Stocks in this article: UBSBCSBK

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) 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) 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.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,827.75 +12.81 0.07%
S&P 500 2,072.83 +5.80 0.28%
NASDAQ 4,787.3170 +29.0650 0.61%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs