BarryO': No prop trading for big banks

[yoganmahew]

tickerforum.org/cgi-ticker/a … ost=125435

BN 10:33 *OBAMA SAYS NO BANK SHOULD RUN PROPRIETARY TRADING OPERATIONS
…
Hedge funds and private equity funds connected to big banks to be “unacceptable”.

Looks like the pendulum is swinging Mr. Volcker’s way…

[TheEmigrant]

This would be huge if he passes it.

A few things spring to mind -

1. There could be some serious bad side-effects to this (for the economy)
2. Banks can still cream off profits from their customers by selling the order flow to hedge funds through charging the hedge funds big commission to trade with them.
3. I can see this law being rescinded in another 20 years when the next bubble is in full flow and the banks ask lobby politicians to remove it.

[johnboy]

I am impressed by Mr. O. I wonder how much of this is related to the loss of the Kennedy seat? The American public are angry.

Will Goldmans start to offer mortgages?

[jacobmarley]

Stocks tumble as Obama takes on banks
By Jamie Chisholm, Global Markets Commentator.

Published: January 21 2010 08:24 | Last updated: January 21 2010 17:14

17:10 GMT. Stocks dropped sharply on Thursday as President Barack Obama said he intended to prevent deposit-taking banks from undertaking any proprietary trading.

The president said he wanted to end the mentality of “too big to fail” in financial markets. “If the banks want a fight, it’s a fight I’m willing to have”, he added.

The FTSE Global Banking index fell 2.3 per cent and the S&P 500 plunged 1.8 per cent as investors feared the proposal would batter investment banking earnings and signalled the administration was getting increasingly tough with Wall Street.

Shares in Goldman Sachs, the investment banking bellwether reversed an initial 2 per cent advance on stronger-than-forecast headline earnings, to fall more than 5 per cent.

Mohamed El-Erian, chief executive of Pimco, told the Financial Times: “Today’s announcement is part of the broader phenomenon of de-risking banks, and moving the sector more towards the ‘utilities’ end of the operating spectrum.

“This reflects post-crisis governments reaction to both systemic risk and political realities. It comes at a time of increasing structural inconsistencies in advanced economies, including the conflict between the de-risking banks and expecting them to lend more to the struggling real economy.

“After a liquidity and stimulus driven rally, stocks are starting to reflect the realities of structural imbalances in both the economy and the policy responses.”

The Dow Jones fell 180 points, its fourth consecutive day of triple-digit moves. The volatility saw the Vix index, known as Wall Street’s fear gauge, jump 14 per cent to move back above 21.3.

ft.com/intl/markets

[yoganmahew]

@johnboy

I am impressed by Mr. O. I wonder how much of this is related to the loss of the Kennedy seat? The American public are angry.

Will Goldmans start to offer mortgages?

It will indeed be impressive if it happens. And I think you are right, but it is not just the public that are angry. The Democrats internally are angry, I’d say, and are looking askance at their new banking chums.

I suspect Goldmans will be pulling out all the stops to revert back to being an investment bank from being a bank holding company… not sure how easy it is to go the other way, but I can’t imagine their banking activities are that large? The big effects will be on Barclays, JP Morgan, Morgan Stanley, Citi…

[yoganmahew]

ftalphaville.ft.com/blog/2010/01 … eagall-ii/

So what could have prompted such a circa-2008 move on the Dow, S&P and FTSE 100 on Thursday?

Well, we can now confirm that the Obama administration is unveiling an aggressive series of regulatory changes that will ban prop trading at deposit-taking banks.

Commercial banks like Goldman Sachs, that is…

Details were sketchy mid-morning in the US as the White House press corp was being briefed in Washington.

The news was supposed to be embargoed for 11.45 ET, but some clot at CNBC published a snap by accident.

“clot” & CNBC & “accident”

[johnboy]

I cannot think of a single developed economy that would want to host these activities now.

Of course the banks will find loopholes and of course prop. trading will continue in a fashion. But this appears like a concerted effort to tame the financial system in the US.

Would the status of the company matter? Even if Goldmans reinvents itself as an investment bank then it should theoretically loose the backing of the US governement and treasury. Think what this will do to its cost of capital.

The statement talks about limiting growth in liabilities too so I suspect that there will be strict new rules on capital too.

I am struggling to find anything to disagee with here.

[mr_anderson]

Am I right in my understanding that its basicially just a re-introduction of the Glass–Steagall Act ?

[yoganmahew]

@johnboy

I cannot think of a single developed economy that would want to host these activities now.

Of course the banks will find loopholes and of course prop. trading will continue in a fashion. But this appears like a concerted effort to tame the financial system in the US.

Would the status of the company matter? Even if Goldmans reinvents itself as an investment bank then it should theoretically loose the backing of the US governement and treasury. Think what this will do to its cost of capital.

The statement talks about limiting growth in liabilities too so I suspect that there will be strict new rules on capital too.

I am struggling to find anything to disagee with here.

Do you have a link to the statement? All I can see is second-hand.

Goldman have shown the ability to run like a publicly traded hedge fund. I think the lure of free money was too much for them (as opposed to raising capital). I don’t expect that will disappear. The others will have to spin off their investment banks, I suppose. Be a bit of a pisser for Barclays to have to spin off BarCap at the same time as everyone else is offloading investment banks…

[yoganmahew]

@mr_anderson

Am I right in my understanding that its basicially just a re-introduction of the Glass–Steagall Act ?

If it includes any reference to Basle III, then it goes a lot further. If it says anything at all about derivatives even…

But the devil will be in the detail…

[yoganmahew]

Hmmm, the squid escapes…
ftalphaville.ft.com/blog/2010/01 … prop-desk/

[mr_anderson]

@yoganmahew

Hmmm, the squid escapes…
ftalphaville.ft.com/blog/2010/01 … prop-desk/

Be honest, are you surprised ?

[verbatim]

@mr_anderson

@yoganmahew

Hmmm, the squid escapes…
ftalphaville.ft.com/blog/2010/01 … prop-desk/

Be honest, are you surprised ?

A cynic might say that GS are cheering on Obama, or that they gave him the idea, the competition gets it in the nads again.

By the way, they better not introduce these rules in Ireland, who would buy all the govt bonds?

[yehbut_nobut]

news.bbc.co.uk/2/hi/business/8473294.stm

US President Barack Obama has proposed significant new curbs on the activities of banks to try to prevent future financial crises.

“Never again will the American taxpayer be held hostage by banks that are too big to fail,” Mr Obama said.

The plans include limits to the size of banks and restrictions on the riskiest trading practices.

US stocks such as JPMorgan Chase and Bank of America - fell sharply as the sweeping new rules were announced.

Limiting risk taking

“While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse,” Mr Obama said.

His proposals also include a ban on retail banks from using their own money in investments - known as proprietary trading. Instead, banks would be limited to investing their customers’ funds.
“Banking reforms do not come bigger than those proposed by President Obama,” the BBC’s business editor Robert Peston said.

This may mean that some of the US’ biggest banks, such as Bank of America and JP Morgan, whose shares were badly hit, may have to be broken up.

Where will this lead - and how will it affect us? I love the but about being “held hostage”
sounds so familiar.

[yoganmahew]

@verbatim

By the way, they better not introduce these rules in Ireland, who would buy all the govt bonds?

Nah, never happen… that government bonds would be included as ‘trading’. They are, after all, considered cash.