An opportunity in Europe?
Both Morgan and Goldman will continue to right size their balance sheets and attempt to find new ways to make money. Both will need to deal with economic troubles that have companies shying away from going public or issuing debt. A return to some sort of normalcy isn't expected until the European debt situation is finally resolved.
But while European crisis is damaging, it could present Goldman and Morgan with an opportunity. European banks are being forced to raise their capital requirements and sell off assets. This slimming down of the European banks could see up to $13 billion in revenues up for grabs, according to analysts at Deutsche Bank. Goldman and Morgan Stanley are well-positioned to eat up some of that business given their size and global reach.
Another bright spot for the banks this year is potential end of the regulatory uncertainty associated with the Wall Street reform bill. Investors will most likely find out by the end of the year how some of the more controversial sections of the bill, like the Volcker rule and Lincoln rules on derivatives, will look. If the rules are implemented with a light touch, Wall Street could possibly see a massive resurgence in profit.
Wall Street is under construction and this previous quarter reflects all the messiness associated with making tough repairs in a volatile environment. Both Morgan Stanley and Goldman Sachs are trading below their intrinsic asset values, so there is clearly some nervousness associated with their ability to make money in the future. Deciding what they want to be and how they want to get there will go a long way to restore investor confidence.
