It took a while -- three years, really -- but Citigroup, by far the weakest of the big banks coming out of the recession, is starting to pull through. After this morning's second-quarter earnings report of $3.3 billion, or $1.09 per share, investors have several things to rejoice over.
Citigroup is closing another one of its proprietary trading groups as it and other banks prepare to comply with the Volcker Rule, which will reduce the exposure of lenders to risky trading activities. What the move will mean for financial giant's profit margins, and its stock price.
Given the level of public outrage over the government's rescue of banks during the financial crisis, the final cost to the taxpayer of keeping those failed institutions afloat turns out to have been relatively modest: The FDIC has paid out a mere $8.89 billion to 165 banks since the crisis began.
UBS and Credit Suisse Group will have to almost double their capital holdings because Switzerland has set out to further tighten the reins on its megabanks, requiring them to hold capital well in excess of the new Basel III rules.
Since Lehman's collapse in September 2008, regulators around the world have begun erecting a scaffolding of new rules and regulations designed limit excessive risk-taking. The big question is: Are they enough to prevent another financial crisis?
"It felt like the world was on fire," recalls financial writer Andrew Ross Sorkin, whose book Too Big To Fail covers the crisis at its peak. In an interview, he discusses the meltdown, its aftermath, the quest for power on Wall Street and why more regulation is still needed.
Moody's is reviewing 10 large regional banks for possible downgrades because it thinks financial reform means total government support is now less likely. That's setting off a debate about whether those banks will actually take a hit to profitability.
Winthrop Brown, a Washington lawyer who lobbies on behalf of financial services firms, says the new regulations should get "a pretty good grade" from Wall Street -- and from Main Street. But will they prevent another economic meltdown?
The tough new restrictions will likely fuel demands for similar curbs in the U.S. But not everyone is convinced that the new rules will have the intended effect of changing bankers' riskiest practices.
The price that the largest U.S. banks pay to borrow money is set to skyrocket -- and that's just the beginning of the sector's growing problems, which could put a big crimp in their profits.
