Citigroup and Morgan Stanley Benefit From Eurozone Clarity
Posted on October 31, 2011 at 08:16 AM EDT
The Bedford Report Provides Equity Research on Citigroup and Morgan Stanley
NEW YORK, NY -- (Marketwire) -- 10/31/11 -- US Banking stocks have skyrocketed in late October as a Eurozone debt deal has been reached. For weeks, investors have punished bank stocks over fears about how much those firms could stand to lose if European banks defaulted on their debt. Many US institutions are counterparties to bonds in Greece and other European nations. The Bedford Report examines the outlook for companies in the Financial Sector and provides equity research on Citigroup, Inc. (NYSE: C) and Morgan Stanley (NYSE: MS). Access to the full company reports can be found at:
Large US Financial institutions still have numerous domestic headwinds, however. According to a government estimate The Dodd-Frank Act's ban on proprietary trading and limits on hedge-fund investments, known as the Volcker rule, will cost U.S. national banks about $1 billion for compliance and capital.
The Volker rule would both limit banks from investing in hedge funds and ban proprietary trading, which is a major profit center where banks trade for their own benefit rather than for clients.
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The limits on banks' activities were included in a provision of the Dodd-Frank law named for former Federal Reserve Chairman Paul Volcker. During the debate over the financial law, Volcker argued that excessive risk-taking in banks' proprietary trading businesses could threaten the overall financial system. The rule has already has triggered major changes at large US banks. Several institutions shut down trading desks that made bets with the firm's own capital. Many traders moved to smaller firms that aren't subject to the rule.
According to Reuters, The idea behind the rule is to prevent banks that enjoy some sort of government safety net, such as deposit insurance on customer accounts or access to Fed money, from using that backstop to make money for themselves.
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