The Volcker Rule

Big bank stocks are all down but shares of Goldman Sachs and Morgan Stanley especially so. Regulatory changes like the Volcker Rule prohibiting proprietary trading hurt all big banks but especially GS and MS as they rely more heavily on it. Brad Hintz has estimated that due to the VR fixed-income business could see pretax margin compression to 17.6% from 24.9% resulting in a return on equity of just 6.5%, well below the banks’ cost of capital!