Other policy moves carry a threat, notably Europes directive for a financial transactions tax of 0.1% on bond and equity trades and 0.01% on derivatives. Traders worry about the cascade effect of the tax applying to each underlying leg of a trade, across many participants vendor, broker, clearing members, clearing system, funds raising costs and reducing volumes in the process. Investor doubtsInvestors share the uncertainty, in some cases leading them to sell stock. BAMLs stock price fell after it announced higher-than-expected earnings, as did the stock prices of Goldman Sachs and Morgan Stanley. Goldman Sachs made investors nervous in spite of its 7% increase in net income. Chief financial officer Harvey Schwartz gave little away on the earnings call, and couldnt be pinned down on the banks return on equity targets. He said: Macro uncertainty continues to be a meaningful consideration for the global marketplace; while the environments were improving, there will clearly be bumps along the way. So, despite an improvement in the outlook, some uncertainty remains. Another uncertainty that has occupied investors minds is the potential impact of regulatory reform on our industry. Investors were also concerned that Goldmans results might reflect an increase in the amount of risk the investment bank is taking on. Morgan Stanley investors were nervous about low trading revenues. Morgan Stanley has been scaling back on FICC trading while building on the Smith Barney brokerage platform and fears are that revenues from the latter wont be enough to compensate for the decrease in trading revenues. FICC revenues were just $1.2 billion far lower than those of its peers although that was an increase of 165% on the previous quarter and also an increase on the first quarter of 2012 an achievement barely any other bank managed. Chief executive James Gorman, however, was more upbeat than most of his counterparts about the future, saying he expected the broader global economic outlook to be stronger over the next few years.
Analysts at JPMorgan are less optimistic about the revenue generation of investment banks. In their April report, analysts say they foresee investment banking revenues will run at levels of 2005 and 2006 and will not be the driver of higher returns on equity. We estimate IB revenues in 2015E to be 31% below peak levels seen in 2009, says Kian Abouhossein. The report says that very little has been done in the innovation of new products, and that emerging market investments will not translate into revenues for the next few years.