Kass: The Broken Brokers
NEW YORK (Real Money) -- Key takeaways:
- The brokerage industry's business model is broken and has been disrupted.
With all the seedy bank behavior that has been exposed since the financial crisis, it's stunning that there's still dirty laundry left to be aired. We've had predatory subprime lending, fraudulent ratings, excessive risk-taking and even clients being taken advantage of in order to unload toxic mortgages.
Yet even with these precedents, the Libor scandal still manages to shock.
-- Joe Nocera, "Libor's Dirty Laundry," The New York Times
Joe Nocera's op-ed column in Saturday's New York Times brought me back to thinking about the intermediate- to long-term outlook for the brokerage sector. (My observations have some applicability to the outlook for bank stocks and profits as well.)
There is little doubt that there will be many trading opportunities in brokerage stocks over time, but a combination of current cyclical and future secular factors will likely weigh on the stocks and inhibit a return to anything like their former glory -- whether measured in share price, P/E multiples or, most importantly, returns on capital.
This is a big and topical subject -- it has been since the bank and brokerage industries exported financial weapons of mass destruction and nearly bankrupted the world's financial system in 2008.