JPMorgan Chase & Co (NYSE:JPM): Another $221 Billion May Be Needed to for Regulatory Compliance


Thursday, February 18th, 2010

According to a research note from JPMorgan Chase & Co (NYSE:JPM), another $221 billion in capital may be needed in order to comply with the enormous number of regulations on the table by governments around the world.

British banks, including the Royal Bank of Scotland Group PLC (LON:RBS) and Lloyds Banking Group PLC (LON:LYG) could be especially hit hard, needing as much as $91 billion to meet government requirements. This assumes existing proposals are made into law.

Also struggling would be the European Union, which is close to needing what UK banks would, with an estimated $86 billion being the number put forth by J.P. Morgan. American banks would have to spend approximately $44 billion under currently proposed regulations.

While all aspects of banking would feel the pinch, the banks with the largest investment banking and insurance divisions are the ones considered most vulnerable to the added costs.

What is worse for the financial institutions would be the additional returns on equity which J.P. Morgan projects to be cut over half of what it is at today's levels.

Profits before taxes would drop by a huge $110 billion, while net income would plunge to $74 billion for 2011.

To confirm not much of this would have an impact by lowering bonuses, even if bonuses were reduced to zero, there would have to be a 26 percent rise in the costs of banking products in order for returns on equity to remain level, let alone grow. With bonuses, costs would have to rise by 33 percent to maintain levels return on equity are at today for the banks.

Some have submitted that the banks 'could' pass on the regulatory costs on to their customers by raising prices. There's no 'could' about it, the cost of doing banking will rise exponentially as the consequence of over regulating the industry.



Article by Gary B

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: bank regulations , jp morgan , lloyds of london , royal bank of scotland

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