Senate Finance Bill Could Trim Big Banks' Profits 20%

New rules on derivatives could be costly for Wall Street
By John Johnson,  Newser Staff
Posted May 21, 2010 6:51 AM CDT
Updated May 21, 2010 7:43 AM CDT
Financial Bill Could Trim Big Banks' Profits 20%
Wall Street might actually feel some pain from the regulatory bill.   (AP Photo/Mark Lennihan, file)

To their surprise, the financial reform bill approved by the Senate last night has some real teeth, financial analysts tell the Wall Street Journal. Although specifics depend on what emerges from the confab with the House, some of Wall Street's biggest institutions could see profits decline by as much as 20%, they claim. Most of that hit would come from the new rules on derivatives trading.

Profit from that sector accounts for about half of all trading revenue at big firms, and the as-written rules would wipe out a big chunk of that. If they were in place in the first quarter, earnings at JP Morgan, Goldman, and Morgan Stanley would have been down at least 16%. The Senate version is actually tougher than the House bill that passed earlier, which one derivatives analyst calls "miraculous." (Read more financial reform stories.)

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