Can Banks, Investors Move On From Fines and Probes?

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July 2 (Bloomberg) -- Thomas Michaud, Chief Executive Officer at Keefe, Bruyette & Woods, and Adam Parker, chief U.S. market strategist at Morgan Stanley, examine the impact on banks and investors from probes and fines brought by the U.S. government and whether or not they will bring about change in the industry. They speak on “Bloomberg Surveillance.”

$9 billion at bnp paribas.

Tom has seen this before and says the big banks will continue to struggle with litigation.

We have heard this from others, but i need you to confirm it.

Dollar for dollar, these fines are paid by shareholders, right?

Absolutely.

Tangible book value still matters.

All of these charges come out of book value, which is going to affect the share price.

But how do you respond to the elasticity, -- how do you respond to the elasticity, the responsiveness of banks in the last 12 months?

Do they just make it up?

I'm sorry echo -- i'm sorry?

It is like a bad dream.

The back of the matter is that as the global economy gets better you have a macro outlook that has gotten better.

That has gotten better.

Book value is a very important variable.

You cannot assume it has no cost to the company.

According to robert jenkins, a former member of the financial policy committee on the big of england -- at the bank of england, he writes this.

Adam parker, we look at this bull market right now we can't -- right now, we talk about the lack of action in a bull market foes of even as prosecutors go after these big banks, the fines might be in the $10 billion neighborhood, but there's still a sense they are getting away with something and retail investors are gun shy about coming back in.

I sit on the education committee for the largest network in the world.

I think our clients have had healthy exposure to equities and participated quite well since the trough.

We went overweight equities relative to bonds in march of 2013 before all of these sub bond yields spikes.

I think our clients have participated.

But is there distressed on main street, tommy, on what is going on in the financial markets and how the banks are handling these transgressions?

Unfortunately, it is not that many companies that have created some of these problems.

You've heard me say this before.

The financial services industry, the banking industry is much broader than six companies.

And i think what is at play is not only made these companies be too big, but are they too complex to manage echo and we've been reading a lot of the fed governor speeches in the last -- are they too complex to manage?

And we've been reading a lot of the fed governor speeches in the last several months.

And i think shareholders do not want to invest in companies that are extraordinarily too complex to manage.

I think it will correct itself.

What you're getting at is the regulation on the big banks that has a effectively hamstrung the small bank.

Can you quantify?

You have a lot of banks that have had zero to do with the crisis.

The typical bank around the country had nothing to do with it.

But these regulations are very hard to stop coming down.

There has been a lot of bifurcation in terms of the biggest banks being regulated more, but everybody is being regulated more.

A couple of things -- one is, at least for the first time in my career, the absolute biggest banks have to have more capital than a smaller bank.

And i think the regulators are leading the smaller banks be more flexible at capital planning and in their return to -- return of capital to shareholders.

I quantify it this way.

Over 30 years, the financial right turn -- return inequity -- in equity is about seven percent or eight percent less on the aggregate.

It is not just banks and financial institutions.

It has been a meaningful reset on equity.

For the banks that adam looks at and the largest cap ranks -- yes, the s&p 500 financials.

I would encourage market participants to look at those big and small cap banks.

It is a completely different profile.

Let's look at the stories shaping the day.

Tom, start us off.

10,000, no question, a benchmark along the way.

I've never seen a lack of conversation about a market like this.

Take a blue-chip stock and just go read their annual report.

I don't even care what stock it is.

They are not written like they were in the last bull market, or for that matter, the last bear market.

There is a new religion out there and that is what is driving this.

And that is use of cash.

What is a better investment

This text has been automatically generated. It may not be 100% accurate.

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