By Catherine Austin Fitts
The latest round of bank profit announcements is worth contemplating, as is the chart above which shows the stock history of several large financial institutions (Deutsche Bank, JP Morgan, UBS, Goldman Sachs, Citibank vs. S&P 500) from one side of the financial coup d’etat to the other.
The long and the short of it is that most of these institutions have come to depend on fixed income fees and trading, including proprietary trading, for a contribution to their earnings. That is a problem, because if federal credit is going to backstop such trading, regulators are going to pull their credit, institute significant regulation to reign in the risk they can get stuck with, or tax profits. The implementation of Dodd-Frank here in the US is a case in point.
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Numerous firms are laying off people in their fixed income divisions. Goldman Sachs just announced profits are down 21% for the quarter. Deutsche Bank was sufficiently worried about its announcement of losses that it accelerated the announcement and made it today.
So the question remains, where is the opportunity? If the long term bull market in bonds is dead, as Pimco’s Bill Gross has proclaimed, where are investment banking profits to come from?
One possibility is finding ways of repatriating foreign cash positions. Another is shifting deposits out of central banks and government securities and putting them to work again in the real economy. Then, of course, there is what could happen in the equity markets with an expanded IPO calendar and growing venture and merger and acquisition activity. Indeed, equity arbitrage was once upon a time the powerhouse at Goldman Sachs that gave us Gus Levy and, oh well, Bob Rubin.
One wonders, would it be possible for the investment banking community to develop an interest in the real economy? Could they profit richly from activities that contribute to real economic muscle, create jobs and generate growing household income, let alone address the problems before us?
What a quaint idea! One wonders if Mr. Global is reengineering incentives so Wall Street’s only pathway to reap huge and hideous fees is on the equity side. With nothing left to harvest, we all have to go out and grow more.
