Obama Plan May Cost Banks $13 Billion, JPMorgan Says

Obama Plan May Cost Banks $13 Billion, JPMorgan Says (Update2)

By Gavin Finch

Jan. 22 (Bloomberg) -- President Barack Obama’s plan to curb proprietary trading will cost Goldman Sachs Group Inc., Morgan Stanley, Credit Suisse Group AG, UBS AG and Deutsche Bank AG about $13 billion in revenue next year, according to JPMorgan Chase & Co. analysts.

Of the five banks analyzed, Obama’s proposals will impact Goldman Sachs the most, resulting in an estimated $4.67 billion drop in earnings in 2011, analysts led by London-based Kian Abouhossein said in a note today. UBS stands to lose the least, with revenue declining an estimated $1.92 billion.

“Goldman Sachs is most at risk with its principal investments business at risk and high fixed-income gearing,” the analysts wrote in the note. Governments are stepping up regulation of banks and insurers after pumping in trillions of dollars to bail out firms.

Obama proposed yesterday to limit the size of banks and prohibit them from investing in hedge funds and private equity funds as a way to reduce risk-taking and prevent a repeat of the credit crisis.

“I think all the announcements will incrementally decrease the amount of return on equity of banks, in particular the investment banks,” said Florian Esterer, a money manager at Swisscanto Asset Management in Zurich, which oversees about $58 billion. The process amounts to “just the early warning shots,” he said.

‘In the Dark’

Other analysts pointed to uncertainty surrounding the detail of Obama’s plan. “We are in the dark as to how proprietary trading activities can be effectively distinguished from Treasury activities and the risk-assumption inherent to market making,” analysts at Keefe, Bruyette and Woods Ltd. said in a note today.

The uncertainty surrounding the banks likely to be affected by Obama’s plan sent financial stocks lower across Europe. The Bloomberg Europe Banks Index fell 2.8 percent at 12:30 p.m. in London, the most in almost two months.

“The biggest loser among U.K. based banks will be Barclays because their business model is quite heavily based on proprietary trading,” said Alistair Milne, a senior finance lecturer at London’s Cass Business School. “Their acquisition of Lehman Brothers in the U.S. was to expand that.”

Spokesmen for Credit Suisse, Deutsche Bank, Goldman Sachs and UBS declined to comment on Obama’s proposals. A spokesman at Morgan Stanley could not be immediately contacted.