This Day On The Street
Continue to site
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

The Deal: Post-Lehman Wall Street Remains Gun-Shy

More immediately, however, Quintanilla warned that the industry's profitability had peaked and was vulnerable to rising interest rates.

Some bankers said they believe that the pendulum has swung too much.

"Before the crisis, we had gone too far in terms of risk taking and there was an agency [responsibility] problem where a bank may originate an ugly mortgage asset," said Wells Fargo managing director of financial institutions, Brian Moon. "But if others were willing to buy it, buyer beware."

But Moon said markets need liquidity and capital leverage for optimal functioning, and with that circumstance comes inherent risk. That mentality is missing now.

"If banks are forced to keep so much capital that they can't effectively lend money, then we have moved too far," he continued.

Indeed, in a Sept. 17 memo leaked on the Internet, JPMorgan CEO Jamie Dimon outlined for the bank's staff the company's approach to ongoing regulatory disputes: simplify its business and bulk up on risk and compliance staff.

The aversion to risk and flight from high-return businesses has led banks' return on equity to nosedive. Before Lehman collapsed, ROEs for investment banks were 15% to 20%. Post-crisis, large bank ROEs are only in the high single digits.

Former CFO at Lehman and now a senior analyst at Sanford Bernstein & Co., Brad Hintz, noted that while the "easy answer" to new regulation may be to reduce or exit capital intensive businesses, the fixed costs of re-entering a trading business will be "very high."

Hintz conceded the near-term outlook for ROEs is difficult but remains optimistic on the long-term prospects for investment banks, noting their adaptive nature to client demands, market dynamics and regulatory developments.

-- Written by Jane Searle in New York
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BAC $17.67 0.00%
C $57.96 0.00%
JPM $68.01 0.00%
MS $39.25 0.00%
WFC $57.59 0.00%

Markets

Chart of I:DJI
DOW 17,440.59 -127.94 -0.73%
S&P 500 2,067.64 -12.01 -0.58%
NASDAQ 5,039.7760 -48.8540 -0.96%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs