Banks Brush Off Volcker Rule

Brittney Barrett  |

The financial sector was mixed on Tuesday, reflecting the attitudes of the broader market. Investors appear to be uncertain of whether to continue adding fuel to yesterday’s rally or abandon it as a downgrade on 14 Spanish banks and a potential European stability threat from Slovakian leaders challenge what Monday seemed a done deal.

The Greek debt crisis has arguably been the primary obstacle for U.S. markets in recent month. Yesterday, after France and Germany pledged to do whatever necessary in order to keep European banks afloat, stocks in every sector of the market began a strong rally. Now with Slovakian legislators faltering prior to the final vote on the European Financial Stability Facility, the question of Europe’s fate is once again in question. This serves to threaten the global markets as well by excacerbating the already serious problem of slowing global growth.

Naturally, this could only be seen as a negative weight on the sinking U.S. financial sector, but a portion of investors that seem convinced Slovakia, among the poorest countries on the board, will eventually submit to the whims of more established nations, continue to snap up shares.

Among the beneficiaries of their bullishness today was J.P. Morgan Chase (JPM) which ended the day slightly higher in spite of ongoing challenges in the market. The firm is expected to release their earnings on October 13, ahead of their competitors. While the plodding U.S. growth and European debt threats will surely have a deleterious impact on the company’s bottom line, some analysts feel the investment banking division, both sales and advisory services is likely to help boost revenues.

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Elsewhere in the sector Bank of America (BAC) ticked higher, likely on that same cautious optimism. Bank of America continues to hover only marginally above its 52-week low as investors await some type of proof that the institution might be headed in the right direction.

The biggest winner in terms of big banks was Citigroup (C), which far surpassed it’s competitors with a 5-plus percent gain. Citigroup’s Chief Economist Willem Buiter, spoke out on his expectations for the European banking situation, stating “I actually believe that despite everything, Europe will manage to solve this issue.” Buiter added that he expects the solution to be the result of “stumbling” more than anything else.

Goldman Sachs (GS) also managed to close the day ahead. Investors appeared to ignore suggestions that the bank would be among the hardest hit by the latest carnation of the Volcker rule, which was unveiled today. Wall Street complained that the complexity of the rule, intended to prevent banks from self-interested investing, made it too difficult to follow.

The U.S. has struggled with developing guidelines that help protect the nation from another financial meltdown without impairing the growth of economy. Regulators are encouraging public comment on the rule until Jan. 13, 2012. The longer-than-anticipated comment period is perhaps what insulated shares of banks from the billions in profit losses that could occur as a result of the new rule.

On the negative end of the spectrum, shares of asset manager Franklin Resources Inc. (BEN) tumbled following the news that managed assets had declined by 8 percent last month and 10 percent for the quarter.

Competing asset managers, including E-Trade (ETFC) and others also fell on the presumption that they would reveal similar losses.



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