Regulatory pressure is expected to weigh on Wall Street's ROE, says Brad Hintz in a recent note. Their proprietary trading and derivatives desks will suffer under Dodd-Frank, says Hintz. "Based on the historical performance of trading units and the inherent relationship between leverage and ROE, we estimate these capital changes [the Basel Committee's new mandates that impose higher capital and etc.] by themselves should reduce the ROE of Wall Street's trading units by 45% to 50% and push the ROE of sales and trading below the banks' cost of capital."
Well, that was fast. Just two years after Wall Street almost bought the farm and had to be bailed out by taxpayers, Wall Street firms are raking in the dosh. In fact, revenues are at record levels in the first three quarters of the year, says Barclays. Can it last?