•    HOME   
•    NEWS   
•    BUSINESS   
•    INTERNATIONAL   
•    TECH   
•    SPORTS   
•    LIFE & TIMES   
•    OPINION   
•    MY JAKARTA   
•    BLOGS   
•    EYEWITNESS   

New York. The ink is not even dry on the new rules for Wall Street, and already, the bankers are a step ahead of everyone else.

In ways large and small, the broad overhaul of the United States’s financial regulatory system approved by Congress will eat into the profits of the nation’s banks. So after spending many millions of dollars to lobby against the legislation, bankers are now turning to Plan B: adapting to the rules and turning them to their advantage.

Compelled to trade derivatives in the daylight of closely regulated clearinghouses, rather than in murky over-the-counter markets, titans like JP Morgan Investment Bank and Goldman Sachs are building up their derivatives brokerage operations.

Their goal is to make up any lost profits — and perhaps make even more money than before — by becoming matchmakers in the vast market for these instruments, which critics say were a principal cause of the financial crisis.

Even when it comes to what is perhaps the biggest new rule — barring banks from making bets with their own money — banks have found what they think is a solution: allowing some traders to continue making those wagers, as long as they also work with clients.

Banking chiefs concede they intend to pass many of the costs associated with the bill to their customers. The legislation, which is expected to be signed into law by President Barack Obama next week, is intended to address the causes of the 2008 economic crisis and curb the most risky behavior on Wall Street.

“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” said Jamie Dimon, chairman and chief executive of JPMorgan Chase, after his bank reported a $4.8 billion profit for the second quarter this week. “Over time, it will all be repriced into the business.”

Short term, the changes imposed by this legislation and other recent reforms could cut profits for the banking industry by as much as 11 percent, according to some analysts.

Long term, Wall Street will be able to plug at least part of that hole by doing what it does best: inventing products that take advantage of the new regulations.

“We’ve been gearing up for this like a merger,” Dimon said. He added that the new restrictions on credit and debit card fees, as well as derivatives, could cost his bank several hundred million dollars annually, but added that the bank would find new sources of revenue to plug that gap.

Investment banks are bracing for the changes in lucrative businesses like derivatives trading.

In the past, banks would sell complex derivative contracts directly to buyers, pocketing hefty fees but absorbing considerable risk as well. Now, most derivatives will be traded through clearinghouses, which will bear the risk, leaving banks to simply broker the transaction.

The shift to clearinghouses will turn derivatives trading from a highly profitable niche to a more volume-based business, in which banks will have to compete on customer service and price. As a result, banks have already spent tens of millions of dollars to rewire their computer systems so they are more efficient in the leaner times ahead.

Even as bank lobbyists fought successfully to dilute the most draconian parts of the new derivatives rules, these same institutions quietly accelerated plans to adapt to whatever rules would eventually pass.

At JPMorgan Investment Bank, more than 100 people, from traders to risk managers and computer programmers, have been busy for months retooling the bank’s derivatives business. Citigroup has peeled off several dozen employees on similar projects, and may form a global clearing services business unit. Although the derivative rules will not go into effect until 2011, major banks have been pitching these services to hedge funds and other potential clients since 2009.


The New York Times