Financial overhaul could create big winners and big losers

WASHINGTON — Even as the landmark financial bill passed by the Senate last week punishes some of the most famous companies in American finance, it may reward little-known firms that operate behind the scenes, below the radar or overseas.

The nation's biggest banks, from Goldman Sachs to J.P. Morgan Chase, stand to lose billions of dollars as they are socked with new fees and regulations and forced to shed businesses.

But their loss could be a gain for other firms. If the banks are forced to stop trading with their own money or spin off activities focused on financial instruments called derivatives, this business could move to hedge funds, which are far more lightly regulated, or foreign banks that don't face the same restrictions.

The biggest banks also will face new oversight and tighter limits that could raise their costs and make it easier for smaller banks to compete.

With its bill, the Senate is picking winners and losers throughout the financial industry and across corporate America. Although some will clearly benefit and others not, the ultimate impact of the legislation is not yet clear for all companies. And if in the end the new rules save companies from making the kind of mistakes that fueled the financial crisis, the costs imposed on even the big banks may be relatively modest.

Much could still change. Senate negotiators will meet with House counterparts to work out differences between the two bills.

Profit

Community banks: Exempt from the hefty regulatory fees assessed on larger banks and left mostly free of a new consumer watchdog bureau's oversight.

Hedge funds: Could reap a windfall if big banks are ultimately forced to spin off their derivatives-trading businesses.

Derivatives exchanges: Mandatory clearinghouses for derivatives trades could make their expertise in the market for these securities more valuable and increase their business.

Institutional investors: Gain greater say over the makeup of corporate boards.

Loss

Community banks: Hit by restrictions on an investment commonly used to satisfy minimum reserve requirements.

Big banks: Face new restrictions that could cut their profitability by barring them from trading with their own money and forcing them to spin off lucrative trading operations.

Credit card companies: Have far less power over fees charged to retailers on credit-card transactions.

Consumer credit lenders: Pawnbrokers and payday lenders would be subject to greater scrutiny.

Ratings agencies: New legal liability for bad judgments on investment safety.

Financial overhaul could create big winners and big losers 05/22/10 [Last modified: Saturday, May 22, 2010 10:02pm]

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