rssWall Street Profits Highlight Case for Derivatives Reform
Tuesday, April 20, 2010 at 9:43 am
- 50 Comments
Last week, J.P. Morgan announced that it made a first-quarter profit of $3.3 billion on revenue of $28.2 billion, meaning for every dollar of business the bank did, it kept 12 cents as profit. This morning, Goldman Sachs — the Wall Street giant charged by the Securities and Exchange Commission with defrauding customers with mortgage-backed financial products last week — released its first-quarter earnings statement as well. It made $3.46 billion in profit from $12.78 billion of revenue — meaning for every dollar of business it did, it kept 27 cents.
This is not quite a picture of a healthy industry. In a competitive marketplace, prices and fees at Wall Street firms should fall and margins should become thinner. On the one hand, Wall Street firms like J.P. Morgan and Goldman Sachs have seen a number of their competitors die in the past two years, and have absorbed business from the failed Lehmans and Bear Sterns of the world. But on the other hand, Wall Street profit margins have remained sky high except for a short blip during the worst of the credit crunch. And, an economist would tell you, such sustained levels of high profitability point to anti-competitive behavior.
Consider another high-profit company in a competitive industry — say, Exxon Mobil. Last year, it made about $19 billion in profit on $300 billion in turnover, giving it a margin of six percent. WalMart? It is in the low-margin grocery and retail business, and managed a profit margin of around 3.5 percent. In the first quarter, Goldman’s margin was just two percentage points below Google’s — and consider how dominant Google is in its industry.
In short, the profits point to a lack of competition. That is one thing the Dodd bill — via derivatives regulation — attempts to fix. Right now, Wall Street firms do not bid for big derivatives contracts — they simply quote a price and work over-the-counter. For that reason, derivatives are wildly profitable for the companies. The Dodd bill will force derivatives pricing to become public to the market, driving down margins as companies compete.
Recently, J.P. Morgan’s chairman, Jamie Dimon, put a number on how much that might cost his firm — $700 million to a “couple” billion dollars — less than a quarter or a tenth of his company’s annual profits.
Follow Annie Lowrey on Twitter
50 Comments
Pingback posted April 20, 2010 @ 12:53 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 20, 2010 @ 1:56 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The Washington Inde… [...]
Pingback posted April 20, 2010 @ 1:56 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform - The Washington Independent [...]
Pingback posted April 20, 2010 @ 2:09 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 20, 2010 @ 2:51 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 20, 2010 @ 2:53 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Comment posted April 20, 2010 @ 3:22 pm
community banks, if run properly, can expect a return of one penny per dollar, just 1% – it's extremely rare to see anything over 1.5%-2%. Yet community banks are under much stricter regulation than these big boys……wouldnt it be nice if we ALL had such easy access to the politicians?
Pingback posted April 20, 2010 @ 4:39 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform - The Washington Independent [...]
Pingback posted April 20, 2010 @ 4:40 pm
[...] Neoprene Sporty ArmBand for Video iPod & Classic 80GB 160GB …Related posts on CaseWall Street Profits Highlight Case for Derivatives Reform « The …Ed Case hires a Blago Boy for HI-01 race. | RedStateRelated posts on DuoBandDurable Clear Reusable [...]
Pingback posted April 20, 2010 @ 5:12 pm
[...] how big they are. It’s how big they are in in comparison to revenues. Annie Lowrey runs through the numbers: Last week, J.P. Morgan announced that it made a first-quarter profit of $3.3 billion [...]
Pingback posted April 20, 2010 @ 5:17 pm
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 20, 2010 @ 5:44 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 20, 2010 @ 7:11 pm
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 20, 2010 @ 7:24 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 20, 2010 @ 7:38 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 20, 2010 @ 7:41 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform - The Washington Independent [...]
Trackback posted April 20, 2010 @ 8:07 pm
Social comments and analytics for this post…
This post was mentioned on Twitter by TWI_news: Wall Street Profits Highlight Case for Derivatives Reform – http://bit.ly/bLHA4o...
Pingback posted April 20, 2010 @ 10:12 pm
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 20, 2010 @ 10:40 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The Washington Independent [...]
Pingback posted April 20, 2010 @ 11:21 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 20, 2010 @ 11:57 pm
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 21, 2010 @ 12:21 am
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 21, 2010 @ 12:29 am
[...] Wall Street Profits Highlight Case for Derivatives Reform « The Washington Independent [...]
Pingback posted April 21, 2010 @ 1:27 am
[...] So.. Annie Lowery@Washington Independent has an interesting take on GS et als.. arguing aint nothing wrong with making profits, though making too much(many) is open season to questions.. in light of pending civil court fraud allegations. [...]
Pingback posted April 21, 2010 @ 1:42 am
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 21, 2010 @ 2:49 am
[...] Wall Street Profits Highlight Case for Derivatives Reform - The Washington Independent [...]
Pingback posted April 21, 2010 @ 6:37 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 21, 2010 @ 8:48 am
[...] tell you, such sustained levels of high profitability point to anti-competitive behavior.Source:http://washingtonindependent.com/82758/wall-street-profits-highlight-case-for-derivatives-reform Posted by anacrismerino at 05:48 Labels: blip, credit crunch, [...]
Pingback posted April 21, 2010 @ 8:52 am
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 21, 2010 @ 9:05 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 21, 2010 @ 10:51 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 21, 2010 @ 11:18 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 21, 2010 @ 3:43 pm
[...] Annie Lowery drives the point home in analyzing the 1Q results from Wall Street: This is not quite a picture of a healthy industry. In a competitive marketplace, prices and fees at Wall Street firms should fall and margins should become thinner. On the one hand, Wall Street firms like J.P. Morgan and Goldman Sachs have seen a number of their competitors die in the past two years, and have absorbed business from the failed Lehmans and Bear Sterns of the world. But on the other hand, Wall Street profit margins have remained sky high except for a short blip during the worst of the credit crunch. And, an economist would tell you, such sustained levels of high profitability point to anti-competitive behavior… [...]
Pingback posted April 21, 2010 @ 4:03 pm
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Comment posted April 21, 2010 @ 3:41 pm
The Dodd bill will force derivatives pricing to become public to the market, driving down margins as companies compete.
The opaque nature of derivatives is precisely what makes them an alluring financial product when used properly. Consider corporate treasuries, which commonly use over-the-counter derivatives to hedge business risks that are beyond their control. These transactions aren't speculative. They're more like an economic utility for many corporations that aren't in the business of investment banking.
Putting all derivatives on an exchange or something like an exchange, which is the only way I know of to force their pricing to become public to the market, takes this option away from the many market participants that use the instruments in productive ways. While I appreciate the good intentions, is it really good policy?
Pingback posted April 21, 2010 @ 10:51 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 22, 2010 @ 12:56 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 22, 2010 @ 12:59 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 22, 2010 @ 2:19 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 22, 2010 @ 4:52 am
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 22, 2010 @ 5:41 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 22, 2010 @ 5:49 am
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 22, 2010 @ 6:06 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 22, 2010 @ 7:01 am
[...] Wall Street Profits Highlight Case fοr Derivatives Reform « Tһе Washington Indep… [...]
Pingback posted April 22, 2010 @ 8:30 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 22, 2010 @ 10:02 pm
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 24, 2010 @ 1:12 am
[...] Wall Street Profits Highlight Case for Derivatives Reform « The … [...]
Pingback posted April 24, 2010 @ 4:03 pm
[...] mundo respecto a los riesgos de otros sectores. Se ve en el cuadro la diferencia en beneficios. Aquí analizan esos números. Goldman Sachs obtiene de beneficios 27 centavos por cada dólar que [...]
Pingback posted April 25, 2010 @ 5:03 pm
[...] The rich keep getting richer. [...]
Pingback posted November 15, 2010 @ 12:40 pm
[...] the financial reform bill, which later became the Dodd-Frank Act, earlier this year. I chased down this comment I left in response to a story by Annie Lowery, who then covered policy for the Washington [...]
RSS feed for comments on this post.
Sorry, the comment form is closed at this time.
