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Banks cry poor; their profits beg to differ
JPMorgan Chase Chairman and Chief Executive Officer James Dimon on the second day of the World Economic Forum in Davos on January 27, 2011.
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Kai Ryssdal: Down deep in the economic hubbub in Washington this week, past the debate on whether the government's going to shut down, beyond arguments over how to fix the mortgage industry, there's a little meeting the American Chamber of Commerce is holding about banking and how regulation's going to cut into their profits. JPMorgan Chase CEO Jamie Dimon complained today that American banks are going to start losing out to foreigners.
But when you consider that the financial industry's profits last year were about 30 percent of all U.S. corporate profits, it doesn't really sound too much like they're suffering. Marketplace's Heidi Moore reports.
Heidi Moore: It's good to be a big American bank now. There are fewer competitors. Profits are high enough that they have some left over to give back to shareholders as dividends. Yet whenever bankers go to Washington, they complain that their profits will be devastated by regulation while foreign banks thrive.
Douglas Elliott isn't buying it. He's a former JPMorgan executive who is now a senior fellow at the Brookings Institution. When it comes to regulation, he says, banks will get over it.
Douglas Elliott: There's a lot of exaggeration. There isn't any big problem here. Many of the parts of our industry just aren't going to move to Asia anytime soon.
U.S. banks are actually doing better now than their foreign rivals, says Lawrence Franko. He's a senior analyst with Delaware Investments, which owns shares of Goldman Sachs and JPMorgan.
Lawrence Franko: Our folks in the banking world complain a lot about our more intrusive regulatory environment. U.S. financial services companies, especially the banks and the investment banks, have really come out of this quite well compared to international competitors.
In fact, Barclays, the British bank, may even be looking to move to New York.
Elliott says more regulation comes with costs, but it will make the banking system safer.
Elliott: Banks need to earn a reasonable profit. But what we don't want is for the sector to earn huge profits because excess profits always come off the backs of the customers.
Regulation may shave profits, but under the new law, the biggest U.S. banks are still too big to fail. That alone gives them a competitive advantage.
In New York, I'm Heidi Moore for Marketplace.
Bankers (and big business CEOs) bonus problem could be fixed with one simple regulation change... They should not be allowed to receive a bonus any higher than they are prepared to LOSE... ie they should have to put their house up as collateral (like the rest of us mortals on this planet have to do) if they want to bet that their business ideas are so great! See http://www.suretech.co.za/CreditCrisis.pdf for some further info on this.
Why exactly do we want banks based here to be "competitive"? We already saw what happens when banks "innovate" and create "new business opportunities" -- they blow up the global economy. So I say No Thanks to "competitive" banks. Let 'em get back into the boring old business of lending money to customers and keeping their own skin in the game.
Like I said, let them leave. Also, I think you better reassess your belief that the US taxpayer will bail out a "too big to fail institution, especially a bank again". I guarantee you the taxpayer will not. And yes, it will look like what is happening in Europe and the Mideast, only worse here because yes, this is the wild wild west! So, your little homeland security nazis better prepare!
