February, 18, 2010

Global banks will take a US$110-billion hit to annual earnings and need US$221-billion of additional capital if all of the proposed regulations to reform the banking industry are implemented, a new report warns. The recommended changes to things like capital, liquidity, taxes, size and scope would reduce average profitability for global banks by 59%, according to JPMorgan.cumulative impact of all the proposed regulation suggests that there is a real risk that we may move from a system that was underregulated to one that is overregulated and that could cause a significant increase in lending costs and a negative impact on the economy," said Nick O'Donohue, the firm's global head of research.

Meanwhile, the return on equity (ROE) for these banks is expected to virtually disappear, contracting from an estimate of 13.3% for 2011 currently to 5.4%. In order for returns to keep constant, JPMorgan estimates that product pricing by the global banks across all financial products such as retail, corporate and investment banking would have to climb 33%. If banks want to achieve a 15% ROE, then product pricing is estimated to need to rise 39%.

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