Bankers Use Trump Rally to Cash Out

Executives, directors at nearly 100 community banks and regional players netted $1 billion in stock sales since election

 Insiders at publicly traded commercial banks with a market value greater than $1 billion, but excluding the largest national banks, sold about $1.4 billion in their company stock between the election and the end of March

.. Private-equity investors with board seats also sold. Four of them accounted for more than $310 million of the sales, or about 22% of the total, since the election. These same investors sold $46 million in 2016 before the election.

The Shattered Arguments for a New Glass-Steagall

Investment banking isn’t risky. What’s dangerous is creating stand-alone firms that can’t diversify.

The 1999 repeal of Glass-Steagall was unfairly blamed in the aftermath of the 2008 financial crisis. Some people—apparently Mr. Cohn among them—mistakenly believe that investment banking is so risky that it should be once again kept separate from commercial banking. The truth is exactly the opposite: Traditional investment banking entails very little risk. The danger is stand-alone investment banks that are not diversified enough to survive a shock.

 ..Banks are at risk of failure when they become too concentrated by geography, industry or product line. Risk needs to be diversified so that no one mistake can bring down the entire institution. Even firms like Citigroup and Bank of America that made a series of mistakes in the 2008 crisis survived because they were diversified. Investment banks that were not properly diversified did not survive: Bear Stearns, Lehman Brothers, Merrill Lynch.
..The major perpetrators of the 2008 financial crisis were 20 or so institutions that had originated, securitized and distributed exotic subprime mortgages with toxic features. About 10 investment banks packaged mortgages made by savings-and-loan associations such as Countrywide, Washington Mutual and Indy Mac, and by state-chartered mortgage brokers—many of which committed outright fraud. These S&Ls were the remnants of an industry that had cost taxpayers some $150 billion during the 1980s and early 1990s. Notably absent from this array of culprits were large commercial banks, with an exception or two.

Oil-Price Rebound Gives Banks New Reason to Cheer

The higher oil prices stemming from OPEC’s agreement to cut crude production should give some banks a boost.

.. In particular, higher oil prices could mean that banks will release some of the reserves they set aside earlier this year to protect themselves against soured energy loans. Such releases would increase banks’ earnings.

.. Bank of America Corp. rose more than 4% on the day, Wells Fargo—2%, J.P. Morgan Chase & Co.—1.6% and Citigroup Inc.—1.6%.

.. Fifteen of the largest U.S. banks amassed a combined $6 billion in reserves for energy loans, according to a Barclays analysis.

How Much Bank Stocks Can Gain From Higher Rates

In the earliest days of ultralow rates, banks benefited as their securities portfolios rose in value, loan defaults declined and funding costs dropped. Indeed, policy makers viewed low-rate policies as supporting banks and the broader economy.

Yet those benefits faded as loans refinanced at lower rates and one-time boosts to bond and loan portfolios ran their course. Over time, gains dissipated and lower rates remained, squeezing bank profit margins.

.. Between 1996 and 2006, U.S. banks had an average return on assets of 1.23%, according to Federal Deposit Insurance Corp. data. Since 2010, the average has been just 0.94%, the data show.

.. If U.S. banks had earned the precrisis average return, cumulative earnings.. would have been around $1.07 trillion. Actual earnings were around 27%, or around $250 billion, less, according to FDIC data.

.. Regulators have required banks to hold more equity. That, combined with lower returns on assets, has led to far lower returns on equity. Between 1996 and 2006, the return on equity for U.S. banks averaged 13.65%, according to FDIC data. Since 2010, the average has been 8.40%.