Banks may cut pay as regulations limit profitability

LONDON (MarketWatch) -- Investment banks face a sharp drop in profitability due to the global crackdown on capital standards and other rule changes, which could lead to hefty pay cuts in the sector as firms struggle to restructure, according to analysts at J.P. Morgan. After looking at the likely impact of eight proposed regulatory reforms the broker slashed its forecast for 2011 return on equity... [more]

LONDON (MarketWatch) -- Investment banks face a sharp drop in profitability due to the global crackdown on capital standards and other rule changes, which could lead to hefty pay cuts in the sector as firms struggle to restructure, according to analysts at J.P. Morgan. After looking at the likely impact of eight proposed regulatory reforms the broker slashed its forecast for 2011 return on equity -- a key measure of profitability for the investment banks -- to around 11% from 15%. The lower outlook is mainly due to higher capital requirements for trading activity, but there will also be an impact from new transparency requirements for derivatives and from limits on the positions firms can take in commodities, said analyst Kian Abouhossein in the note. Shareholders are unlikely to stand for such low returns, forcing banks to cut pay and bonuses and to make further staffing cuts to lift returns back to around 15%, he added. http://www.marketwatch.com/story/banks-may-cut-pay-as-new-rules-hurt-profitability-2009-09-09 Will never happen. Will never affect Manhattan. Which is impervious to everything. [less]