Page 61 - Monocle Quarterly Journal Vol 1 Issue 1 Q4

only after eroding more than a quarter of their net pro t after tax to simply pay nes. Equally deleterious to investors is the fact that this same USD 29.6 billion could have been used to shore up Tier-1 core capital – a Basel III requirement that has e ectively nearly doubled required regulatory capital since 2008.
To put this problem of capital into perspective: on average, over the past four completed nancial years, nes have eroded 4.6 percent of JP Morgan’s Tier-1 capital. In a world in which returns on equity within the banking industry are below 10 percent, it has become increasingly di cult to raise capital within banking. is is especially true when even pro table banks are unable to e ectively retain earnings and reward shareholders, since either nes, or the rules of stress testing, prevent them from doing so. To be clear, under bank stress testing rules within the US – but not within bank stress testing rules in Europe – failure to prove that a bank’s balance sheet has su cient capital to absorb hypothetical market disruptions leads to a ban on any dividend payouts.
One should not necessarily shed a tear for JP Morgan speci cally however, since they are by no means the only rm to have been impacted by the signi cant shift in attitude in the middle of 2012 by regulators and governments both in the US and Europe.
Massive Fines Levied Against Bank of America
Bank of America as an example, over the same four-year period, was ned a total amount of USD 43.1 billion. In 2012, Bank of America made a loss, meaning that a comparative ratio of nes levied versus net pro t after tax yields a negative value and is super uous analytically. However, for the three years starting January 2013, through to 31 December 2015, Bank of America did make pro ts, and was ned an incredible average of 94.2 percent of these pro ts. To be clear, these ratios are calculated as the sum of levied nes for the year, divided by the rms’ reported net pro t after tax. Any provisions made within the nancial statements for the year in question would have been embedded within the pro t before tax line item.
Just in the year 2012, Bank of America was ned an eye-watering USD 12.4 billion. In 2014, Bank of America was ned in excess of USD 27 billion, or 167 percent of net pro t after tax. In the four years from the beginning of 2012 onwards, Bank of America made a net income of USD 25.8 billion, and was ned more than this in one year alone.
“Bank of America as an example, over the same four-year period, was ned a total amount of USD 43.1 billion.”
how to RoB A BANK
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