Tags: banks | regulation | JPMorgan | Shake Shack

Banks Whining and Winning on Regulation; Shake Shack Shaken

By    |   Tuesday, 21 July 2015 12:11 PM

It didn’t take long after the 2008 episode of the ongoing, permanent financial crisis for the too-big-too-fail banks to start presenting themselves as victims, rather than perpetrators, of the financial crisis. JPMorgan Chase’s Jamie Dimon and friendly legislators speak of the “cumulative impact” of the regs, while seeming to forget the impact of their own risky actions and the fact that they exist thanks to the support of the federal safety net. Some analysts have also sung this tune during earnings seasons.

Christian Edelmann, of Oliver Wyman, told CNBC that, “Capital, liquidity, and funding requirements are having an impact on the returns that are achievable on the industry. In addition, the whole theme of ‘conduct regulation’ has an impact on compliance standards that the banks need to adhere to and the way the service to clients and operational costs have shot up over the last couple of years.” Prompted by the interviewer, Edelmann added, “The model of a global bank being able to run the same set of standards has become much more challenging,” subjecting banks to “local liquidity, local capital, local operating requirements.” Still, he concludes that banks in North America are the most attractive in the industry. Half of the interview was devoted to the potential impact of Fintech on the industry, and Edelmann found that most banks “really haven’t defined a strategy” for using Fintech to achieve excellence. Taken as a whole, the analysis suggests to this writer that despite all the complaining, U.S. banks have been able to tame their regulators and stretch out the “limplementation” of the Dodd-Frank Act as they have done with previous rounds of ineffective regulation by captured banking agencies.

With IBM again reporting “really disappointing” revenues, Hugh Johnson, CEO of Hugh Johnson Advisors, said, “Their cost cutting has been running ahead of their revenue declines, and it’s not a good picture.” The stock dropped 5 percent, and Johnson concluded that the company is still having difficulty turning around, so maybe investors should stay away from it. Asked by Susan where opportunities lie, Johnson called this “a momentum market” and recommended Apple.

Gershon Distenfeld, of AllianceBernstein, looked at the high-yield market from the standpoint of analysts who expect a rate hike by the Federal Reserve. He predicts, first, another “taper tantrum, and a little bit of a selloff, but then people will very quickly come back to the market, because they need income, and the main risk in the high-yield market is not interest rate risk; it’s credit risk.” He suggested that since it is late in the credit cycle, investors need to differentiate among credits, with high yields low compared to other cycles, “but it’s far from a disaster.”

Dennis Gartman, CEO of The Gartman Letter, updates the deteriorating market for gold in dollar terms, reiterating that investors should not hold gold in dollars, but rather in weaker currencies, such as the yen and the euro. Gartman estimated that the trend of the dollar strengthening and depressing the price of gold is only in “the third inning of a nine-inning game.” He called gold “under duress” and predicted that it could go to “the obscene number,” under 1000.

Finally, Shake Shack dropped 3% after disclosing plans for a secondary offering, and CNBC’s Herb Greenberg of Pacific Square Research, spoke about how investors should analyze such a circumstance, warning that some stocks have collapsed after a secondary was completed.

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It didn't take long after the 2008 episode of the ongoing, permanent financial crisis for the too-big-to-fail banks to start presenting themselves as victims, rather than perpetrators, of the financial crisis.
banks, regulation, JPMorgan, Shake Shack
Tuesday, 21 July 2015 12:11 PM
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