Industry insiders criticized big U.S. banks as being "uninvestable" on Tuesday at the Securities Industry and Financial Markets Association's (SIFMA) annual meeting in New York.
High-ranking officials from Bank of America-Merrill Lynch, McKinsey & Co. and Moore Capital Management agreed in a panel discussion on the financial sector's outlook that investors are turning away from the big banks because the future of their business models are far from certain.
"Uncertainty is so profound in financial institutions that I'm sure Guy would say it's uninvestable right now," said Moore Senior Portfolio Manager Matthew Carpenter to Guy Moszkowski, managing director of BofA-Merrill's U.S. Equity Research team, seated with him on the SIFMA stage at the Marriott Marquis in Times Square.
Moszkowski agreed, noting that a return on equity (ROE) of 7% to 8%, with no dividend, is typical in the current economic climate as banks deal with interest rates in the low single digits. "It hasn't been easy," he said. "There's a tremendous amount of uncertainty.
LPL Financial President of National Sales Bill Dwyer introduced the panel by saying that the financial sector is at an "inflection point" where regulatory reform, market volatility and industry changes all create challenges.
SIFMA President and CEO Tim Ryan, who served as moderator, then asked the panel how big a deal Dodd-Frank reform is, particularly in terms of the Volcker rule and Basel III capital rules.
"In earthquake terms, I'd put it at about an 8 on the Richter scale," Moszkowski said. Banks still can't quantify the impact on trading revenues, but the impact will be significant, he said.
Last month, AdvisorOne reported that Susquehanna Financial Group analyst David Hilder said Goldman Sachs and Morgan Stanley may consider dropping their status as bank holding companies to avoid increased costs related to the Volcker rule in fallout from the proprietary trading proposal released earlier in October.
