CNBC reports that investment banks have plans to offload $1 Trillion in assets within the next 2 years. Well, now we know the size of QE 3 as who other than The Fed would buy $1 Trillion in worthless MBS? There's no other way investment banks will be able to dump $ 1 Trillion in assets over the next 2 years, unless they're suddenly willing to mark to market rather than fantasy and write down 85% losses.
We didn't think so.
Investment banks are to shrink their balance sheets by another $1 trillion or up to 7 percent globally within the next two years, says a report that foresees a shake-up of market share in the industry.
Higher funding costs and increased regulatory pressure to bolster capital will force wholesale banks also to cut 15 percent, or up to $0.9 trillion, of assets that are weighted by risk, a joint report by Morgan Stanley and consultants Oliver Wyman predicts.
In addition, banks are expected take out $10 billion to $12 billion in costs by reducing pay, firing employees and paring back investments in areas that are no longer considered core.
“It is really decision time for investment banks,” said Huw van Steenis, analyst at Morgan Stanley. “The market underestimates the degree to which banks will rationalize their portfolios of activities.”
The report says investment banks have taken out about 7 percent of capacity last year and will cut up to another 10th in the next two years.
Reacting to regulatory pressure and the euro zone sovereign debt crisis, a number of banks have embarked on heavy cost-cutting in the past six months, shedding staff and assets and closing down or selling whole units.