Wall Street: Impact of Dodd Bill on Profits Negligible in Long Run

Tucked in this New York Times piece on Wall Street’s reaction to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill, now moving into conference committee for reconciliation with the House version, an anonymous Wall Street worker guesses at the bill’s impact on banks’ bottom lines.

Many executives spent the weekend trying to assess the impact of the legislation, which has yet to take final form. With some crucial differences between the House and Senate versions of the bill remaining, lawmakers will confer over the next few weeks and try to reach a final version before Congress’s Fourth of July recess. But Wall Street’s initial verdict seems to be that it could have been much more draconian.

“If you talk to anyone privately, there’s a sigh of relief,” said one veteran investment banker who insisted on anonymity because of the delicacy of the issue. “It’ll crimp the profit pool initially by 15 or 20 percent and increase oversight and compliance costs, but there’s no breakup of any institution or onerous new taxes.”

And just how big is that profit pool? In 2009, Goldman Sachs made $13.4 billion, JPMorgan Chase made $11.73 billion and Wells Fargo made $7.99 billion. Bank of America and Morgan Stanley both had bottom-line profits but attributed losses to investors — $2.2 billion and $907 million respectively. And Citigroup lost $1.6 billion. All in all, in a rather rough year for banking, those six firms made $28.4 billion. Losing 15 percent would have brought that number down to $24.1 billion — about the size of California’s budget deficit, for a sense of scale.

All in all, he or she guesses that Dodd will cost the banks a few billion dollars — a rounding error over the course of a decade. And the most worrying word in the quote is “initially.” In Wall Street’s mind, the Dodd bill will ultimately have little impact on profits — and thus little impact on the profit motive — going forward.