Morgan Stanley and JPMorgan to see profits hit by new regulations, analysts claim

30 June 2010

Some of the largest US banks, such as Morgan Stanley and JPMorgan, could see their profits fall following the introduction of new regulations by the government, financial analysts have claimed.

A report by experts at Goldman Sachs revealed that earnings at the bigger financial institutions could fall by 13 per cent following the passing of proposals into law.

The new rules are expected to involve the reform of legislation surrounding derivatives, the establishing of a new consumer-finance watchdog within the Federal Bureau and the creation of a resolution authority responsible for unwinding ailing firms without using taxpayer money.

In the report, the analysts at Goldman Sachs said: “We believe that passage of this bill represents an important milestone that will go some way to alleviating the uncertainty that has been weighting on the sector.”

Although firms within the financial system will have to shoulder some of the financial burdens of the new system, the consumer will also have to contribute for the legislation to go-ahead, the investment bank explained.

“Some of the increased regulatory and legal burdens will be passed on to customers either in the form of annual fees or higher spreads on lending.”

The report by Goldman follows an agreement by the senate to approve a bill of reform overhauling financial regulations currently in place within the US.

By Jim Ottewill

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