A big whine by the big banks
Over the past two days, the three largest American banks — that would be Bank of America, JPMorgan Chase and Wells Fargo — have all filed their 10-Ks. Taken together, the 3 filings added up to nearly 1,600 pages. After skimming large parts of them over a 24-hour period, we’d like to humbly suggest that the CIA seek to integrate the forced reading of lengthy SEC filings into their counter-terrorism efforts.
We are joking, of course, but one thing that came across from reading all three filings is that the big banks are very concerned with the current regulatory environment; and within the context of the national political competition underway, they are concerned about what might happen as a result of the upcoming presidential election.
According to the big banks, regulators of various stripes and flavors — at the state, federal and even international levels — have become increasingly aggressive. And while this is written in legalistic language, it’s hard to see this as anything other than a very loud whine, especially after reading the filings consecutively, as we did.
Here’s a snip from Bank of America’s 585-page 10-K filed yesterday afternoon:
Our regulators’ prudential and supervisory authority gives them broad power and discretion to direct our actions, and they have assumed an increasingly active oversight, inspection and investigatory role across the financial services industry… proceedings brought by regulators against the financial services industry generally has increased. In some cases, governmental authorities have required criminal pleas or other extraordinary terms as part of such settlements, which could have significant consequences for a financial institution, including reputational harm, loss of customers, restrictions on the ability to access capital markets, and the inability to operate certain businesses or offer certain products for a period of time.
And here’s a snip from JP Morgan’s 344-page filing on Tuesday.
To the extent that legislative or regulatory initiatives are imposed on a limited subset of financial institutions (based on size, activities, geography or other criteria), the requirements to which the Firm may be subject under such laws and regulations could require the Firm to restructure its businesses, or re-price or curtail the products or services that it offers to customers, which could result in the Firm not being able to compete effectively with other institutions that are not impacted in the same way.
Wells Fargo, whose 10-K was the biggest, weighing in at 654 pages, had this to say about the regulatory environment:
Greater government oversight and scrutiny of financial services companies has increased our operational and compliance costs as we must continue to devote substantial resources to enhancing our procedures and controls and meeting heightened regulatory standards and expectations. Any failure to meet regulatory standards or expectations could result in fees, penalties, or restrictions on our ability to engage in certain business activities.
While banks have long complained about regulations in their filings — just look at the 10-Ks from 2003, the year after Sarbanes-Oxley was introduced, not to mention Dodd-Frank — this year’s disclosures are all a lot more forceful across the board. And it seems hard to chalk up the similarity in these disclosures at each of the big banks to a mere coincidence.