Andrew Ross Sorkin: Banks Look Stable But "There's Got to Be Another Leg Down"
finance.yahoo.com
Posted Oct 23, 2009 11:00am EDT by Heesun Wee in Investing, Recession, Banking
Related: jpm, gs, ms, c, bac, aig, xlf
JPMorgan, Goldman and Morgan Stanley recently reported whopping quarterly profits, perhaps signaling a record year for U.S. financial institutions -- only one year after the government offered $700 billion in life suport at American taxpayers' expense.
But are the banks really safe?
"It feels like it's getting better inside the banks. It feels like it's getting better inside some companies," says our guest Andrew Ross Sorkin, a New York Times columnist and author of "Too Big to Fail. But "it feels like there's got to be another leg down."
As with many others, Sorkin notes the disconnect between the ferocious stock market rally and the lack of revenue growth for most big firms, as well as the rising unemployment rate and general sense of malaise on Main Street. "So maybe things look like they improve for 12 months but at some point the rubber is going to hit the road," he says.
Sorkin also cited other concerns:
Weak bank lending: While banks are rightfully criticized for sitting on bailout funds, demand for lending -- at the consumer and corporate level -- remains weak.
No level playing field: Despite the bailout's intention to create uniformity among the banks, in fact, the strong have only gotten stronger, and vice versa. "It's only going to get worse,'' Sorkin says.
Sure, Goldman, JPMorgan and Morgan Stanley gave back their TARP money -- plus a return for taxpayers! -- but that was a "head fake," Sorkin says. Taxpayers aren't supposed to pay attention to struggling institutions that also were bailed out -- AIG, Citigroup and Bank of America -- and have little hope of paying back the government. Oops.
Crack down on excessive Wall Street pay: The Obama administration has moved to flatten compensation at the seven firms that pocketed large sums of government aid. But the administration may be caving to populist pressure and seeking a band-aid solution to the larger, more salient issue of meaningful, financial reform, Sorkin says.
Bottom line: Expect more separation of wheat from the chaff as stronger banks like JPMorgan to take advantage of the new pay rules and poach top talent from weaker firms. The rich getting richer -- not a good foundation for a sound financial system. |
