One on One with Robert Albertson, Chief Strategist at Sandler O'Neill
Wednesday, June 17, 2009
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SUSIE GHARIB: Joining us with more on the impact of the new regulations on banks and financial institutions, Robert Albertson, chief strategist at Sandler O'Neill. Hi, Robert.
ROBERT ALBERTSON, CHIEF STRATEGIST, SANDLER O'NEILL: Hi Susie. How are you?
GHARIB: Good, thank you. So do you think that these reforms proposed by the president change the fundamental way that banks and financial institutions do business?
ALBERTSON: No, I don't. I've been reading and rereading this trying to understand it. In the first place, I got to tell you it's very general. It's obsessed with structure of regulation, not execution, which is the problem. And it could well be transformational, but this is basically an invitation for dysfunctional congressional committees to create or translate these golden rules into legal ideas and duties. It's kind of hard to tell where this is going. I don't think it's going anywhere good.
GHARIB: Are you saying that it's not, the new oversight, the new rules are going to change or not change the way that banks sell products, the way they loan money, the amount of credit that's available. Is it going to change that structure at all?
ALBERTSON: No, I don't think it really does. I think it will add some costs to it. I think it might un-level the field for banks. It might punish some sized banks versus others, which is not helpful. But I'm grasping for where this does anything that helps the credit creation process of America and it completely ignores the vast bulk of that process which is not in the banks in the first place.
GHARIB: What's the vast part of the process? What are you talking about?
ALBERTSON: Not the profits, the process. The bulk of the credit created in this country, loans, is not created by banks. It's created by the securities that Wall Street has created and that's evaporated because Wall Street got clobbered.
GHARIB: All right and you don't see any new oversight that's going to impact how Wall Street deals with making, whether it's securitization or any part in the process.
ALBERTSON: No. What I see here are goals that are the same goals, rules that are the same that already exist. I'm seeing boxes being moved around. I'm seeing two things here. Number one I'm seeing a new thing called a tier one FHC, which is another word for too big to fail, which has a definition that is so expansive it will encompass a General Motors, an Exxon, even a terrorist group. What it ignores are the problems that occurred in 2008. None of this would have prevented 2008. Hedge funds didn't cause 2008. It was excessive mortgage. Hedge funds are already largely registered investment advisors. Derivatives, ditto. They (INAUDIBLE) murderer. They are also largely regulated. Deregulation didn't cause this; there was no deregulation. There was no lack of -- it wasn't a lack of coordination. It was just pure execution. Think about it. Madoff was a regulated entity. It happened to have been FINRA. The head of that is now the head of the SEC. None of this would are prevented a Madoff. This would not have prevented a lapse of credit.
GHARIB: So Robert, let me ask you this. What is it that you would have liked to have seen the administration do so that it would have prevented a Madoff or another financial crisis? Is there any one key thing?
ALBERTSON: Look, the answer is it's nothing to do with the structure or any of this. It has to do with quality regulators, pay them more, make them starter, teach them, focus on product, make it simple. This is becoming a new erector set of structure. It's not going to do anything.
GHARIB: So it's enforcement?
ALBERTSON: I'm very disappointed to see this. This is deck chair movement. This is words. This is -- I like -- one of the words that comes up here is harmonize. The Chinese like that one. I look at this with my mouth dropped open. I really don't see where this is headed that is valuable. If anything, it probably takes some of the independence away from the Fed, when it has to act in an emergency situation. I just find things here that make no sense.
GHARIB: We just have 30 seconds left. Real quickly I want to ask you, what is your position then for investors to invest in the financial sector at this juncture, given what we know is going on in the market and with these new regulations.
ALBERTSON: Tread very carefully. They make sense for the long-term, only the ones that are recapitalizing themselves to stay afloat in this sea of turbulence and I think this only adds to it.
GHARIB: All right, Robert, thank you so much for coming on the program. Appreciate your time.
ALBERTSON: A pleasure.
GHARIB: My guest tonight is Robert Albertson, chief strategist at Sandler O'Neill.
