Minerd Says Banks Need Clear Guidance From Regulators to Thriveby
Guggenheim CIO says cost cuts only way left to boost profit
Calls bank debt a good way for investors to get safe returns
Bank profits will continue to be squeezed until U.S. regulators provide clearer guidance on issues such as capital requirements, according to Scott Minerd, chief investment officer for Guggenheim Partners LLC.
“Until regulation starts to at least stabilize” banks won’t thrive, Minerd said Friday in an interview on Bloomberg Television. Bankers have told him “we could rationalize the business or make money” with clarity from regulators, Minerd said. Until then, banks will have to continue cutting costs, he said.
Big banks earlier this week failed to persuade regulators they could go bankrupt without disrupting the financial system and could now face a tighter leash from Washington. Eleven of the largest U.S. and foreign banks including JPMorgan Chase & Co. and Goldman Sachs Group Inc. submitted so-called living wills that fell short, the Federal Reserve and Federal Deposit Insurance Corp. said this week in a statement.
Earlier today, Citigroup Inc. became the latest large U.S. bank to beat analysts’ estimates, joining competitors in slashing costs more than anticipated amid a trading and deal-making slump.
“Given the load of regulation, it has become harder for the banks to find places to make money,” said Minerd, who helps oversee more than $240 billion in assets. The industry will continue to shrink until it reaches a bottom “but it might not be this year,” he said.
While harsher regulation has limited bank profits, it has created opportunities in bank debt. Minerd called bank credit one of the best places to go for safety and returns.
“The banks are much safer than they were a decade ago,” he said.
Bank bonds have gained 2.2 percent this year, according to the Bank of America Merrill Lynch U.S. Banking Index. The KBW Bank Index, which tracks the stocks of 24 banks, fell 8.3 percent before today, according to data compiled by Bloomberg.