Tom Keene Talks to Second Curve Capital's CEO

Tom talks with Tom Brown, chief executive officer of research firm Second Curve Capital, about U.S. banks

Should there be a Volcker Rule that separates banks’ traditional business from trading on their own account?
I am not a big fan. We should have a system where companies take risks. And if they fail, they should fail, just like MF Global. But we have the Volcker Rule and we have to deal with it.
Do you spot a theme in the bank earnings coming in?
We have trust banks like Bank of New York, which reported weak results. We have the major investment banks; Goldman Sachs is coming off a terrible year. And we have regional banks that get 75 percent of revenues from lending money and earning a spread on it. That business actually picked up.
What do you see for the first two quarters of 2012?
Credit expense for banks outside the top 10 is going to continue to be significantly lower, and that will drive earnings. For capital-market banks I would expect, particularly in mergers and acquisitions, to see a much stronger year.
Why is M&A going to be bigger?
M&A tends to follow economic activity. We know there is all this cash on corporate balance sheets. So you would think companies would go into more of an offensive mode.
Will the banks reduce head count?
The industry is looking to lower costs. One hit to revenue came from regulatory changes. The other hit is banks make less money at these low rates.

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