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

[video] Volcker Rule Puts Non-Bank Financials Into Play

"Put simply, the reforms we are putting in place raise the cost for a bank to be large, requiring firms to internalize their risks, and together, with resolution authority and living wills, make clear that shareholders, creditors, and executives -- not taxpayers -- will be responsible if a large financial institution fails," Treasury Secretary Jack Lew said in a speech last week.

According to Cannon, Volcker and other new rules will combine to severely curb the big banks' trading activities and "squeeze the ability of large banks to compensate employees engaged in these activities."

So there's quite a bit on the table for the large banks.  Investors will be watching to see which of the "big five" named above will be first to spin-off some or all of their investment banking operations.

According to KBW's data second-quarter trading revenue for all U.S. bank holding companies totaled $21.9 billion, with JPMorgan in the lead with 24%, followed by Citigroup (20%), Goldman (18%), Bank of America (16%) and Morgan Stanley (13%).  All other U.S. bank holding companies combined for the remaining 9% of second-quarter trading revenue.

With other rules soon to be implemented covering foreign non-bank trading firms, KBW expects total trading revenue for all firms to decline, and that "revenues currently at the large bank holding companies will be pushed out to non-bank broker-dealers and other security trading firms."

Here are quick valuation snapshots for the five firms KBW mentioned as well-positioned to benefit from Volcker and other coming regulations that could push the largest U.S. banks to radically change their businesses:

  • Shares of Piper Jaffray closed at $38.00 Friday, returning 18% this year. The shares trade for 15.4 times the consensus 2014 earnings estimate of $2.47 a share, among analysts polled by Thomson Reuters, and for 15.0 times the consensus 2015 EPS estimate of $2.53.
  • BlackRock closed at $301.83 Friday, returning 50% this year. The shares trade for 16.9 times the consensus 2014 EPS estimate of $17.86, and for 14.7 times the consensus 2015 EPS estimate of $20.60.
  • KKR & Co. closed at $23.23 Friday, returning 66% this year. The shares trade for 9.4 times the consensus 2014 EPS estimate of $2.47, and for 8.5 times the consensus 2015 EPS estimate of $2.74.
  • The Carlyle Group closed at $32.99 Friday, returning 32% this year. The shares trade for 10.3 times the consensus 2014 EPS estimate of $3.19, and for 9.0 times the consensus 2015 EPS estimate of $3.67.
  • Springleaf Financial began trading on Oct. 16 at an opening price of $19.10 a share. The shares closed at $21.77 Friday, trading for 11.7 times the consensus 2014 EPS estimate of $1.86, and for 8.3 times the consensus 2015 EPS estimate of $2.30.




RELATED STORIES:

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
2 of 2

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 $16.67 -1.60%
JPM $66.82 -0.76%
AAPL $125.62 -0.30%
FB $87.25 -0.34%
GOOG $525.16 0.44%

Markets

DOW 17,776.91 +93.33 0.53%
S&P 500 2,081.34 +12.58 0.61%
NASDAQ 4,997.4590 +5.5190 0.11%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs