Bank stocks have been on a tear since the November rout that catapulted the GOP into control of Congress. And now Wall Street is banking on the Republicans to water down the Dodd-Frank bill, which by some estimates may slash bank profits by some $22 billion, Barron's reports.
According to Barron's, the KBW Bank Index, which tracks 24 companies, rose 13 percent in the four weeks preceding Jan. 5, more than three times the gains of the Standard & Poor's 500. Nevertheless, such optimism may ultimately prove to be baseless since there's only so much the GOP-led House can do to tame the harsh new regulation.
"Any statement of just how much of the Dodd-Frank law will be changed by House Republicans is speculation. In fact, investors may be overestimating the GOP's nimbleness. As plodding as the regulatory agencies are, they could begin to implement rules before the House Financial Services Committee holds any hearings on the matter.As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio
What's more, Republicans may be distracted by efforts to reform the congressionally chartered mortgage giants Fannie Mae and Freddie Mac. President Obama is going to unveil his administration's reform plan this month, and Republicans will offer a proposal of their own.
Some of the new costs simply won't go away. Banks will have to adhere to higher capital of some kind. Ditto for liquidity requirements. And banks' cost of deposit insurance and regulatory compliance are sure to increase significantly, regardless of what the GOP may accomplish. "Every page of the law has something that impacts the bottom line," says banking lawyer Thomas Vartanian. That's saying a lot. The law is 848 pages long."