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Volcker Rule forecast gloomy for investors

Sun Qing, a financial journalist, recently predicted that the Volcker Rule will have a negative impact on both financial markets and investors beginning with its implementation on July 21.

The Volcker Rule is a provision of the 2010 Dodd-Frank Act that prohibits banks from engaging in proprietary trading—or risky investments with client money. Critics have warned that the rule would damage liquidity and the ability of U.S. firms to compete in a global economy.

Qing said that an interview with a senior analyst from Citigroup revealed that the 2008 financial crisis had not been the toughest time for Wall Street entities, but rather ensuing Dodd-Frank regulations have been the cause of recent distress, China.org.cn reports.

Qing also said that while banks like JPMorgan and Citigroup could rely on traditional banking activities after the implementation of the Volcker Rule, investment banks would be forced back to mergers and acquisitions.

“Regulations are going against Wall Street banks, and through them they target the entire financial market,” Qing said, according to China.org.cn. “Differently from Chinese banks that many consider counter-cyclical, Wall Street banks, especially those with a high reliance on investment banking, are greatly exposed to the current market condition.”

Additionally, Qing cited a recent slump in the fixed income, currency and commodities market as evidence of tumultuous market conditions. Qing also revealed analyst predictions of a 33 percent reduction in trading volume as a result of the Volcker Rule.

Qing said that M&A practices will not be as profitable, and profits will slip by 17 percent compared to the first quarter of 2012, adding that investors have already been disappointed by first quarter data, China.org.cn reports.

“Compounded with the shrinking revenues are large amounts of assets, such as the bank’s mortgage-backed securities and collateral debt obligations, which will take them between five to eight years to liquidate,” Qing said, according to China.org.cn. “It will be no surprise when Wall Street banks turn in lackluster balance sheets for ensuing quarters after Volcker Rule goes into effect, and investors should be prepared for the gloomy business climate to come.”

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