J.P. Morgan (NYSE:JPM) Says Increased Regulation Could Crush Revenue in 2010

As lawmakers continue to interfere with the market and banks, it is becoming increasingly clear that large financial institutions like J.P. Morgan (NYSE:JPM) and its shareholders will suffer revenue and profit declines as a consequence of politicians making it look like they’re fixing something that the in fact have no idea what to do with, as their actions have largely shown.

It’s interesting in light of ongoing pressures to separate retail banking from investment banking, that investment banking may be one of the last places large banks may be able to generate significant revenue and profits.

What this means of course is lawmakers have pushed banks toward what they are supposedly trying to get them out of, and as they continue to whittle away at those areas where fees and interest rates have served them well in the past, there is little left of what the industry can do to grow and increase profits organically.

With that in mind, J.P. Morgan has recently said they could lose about half-a-billion dollars in net income in their card business from the new regulations now officially put into force. Chase said in their 10-K filing they could experience a net loss in the business of $1 billion in the first quarter, although it may improve some in the second quarter, although they will still suffer a loss.

Most of that is in relationship to new rules in connection to fees applied to customers, which will no longer be allowed the way they were in the past.

Other potential revenue busters in the near future would be in relationship to the need to clear normal over-the-counter derivatives contracts in a centralized fashion which, along with new and tighter requirements on capital and margin, could also hurt the revenue for Chase. These new rules could cost the company as high as $3 billion.

Some of this is of course a cat-and-mouse game between the giant financial institutions and the U.S. government, but there is a real potential to experience big losses from the regulations now being applied to the banks.

While all of this talk is interesting and possibly true, the real story will be told when the quarterly results are reported and we get the real picture of what is happening. Until then, all of this is rhetoric which can’t be proven one way or the other.

Even so, if history has a way of teaching us anything, it’s that interference by the government in the market always has negative, unintended consequences. We already see the potential for many of these happening; and they probably will happen. At that time the ball will be thrown back into the court of the politicians who will at that time have some explaining to do as where to go from there. I don’t think they have any more idea than they did when they first implemented all the new rules based on populist fervor.