Less Profitable Time for Large Banks?

The Wall Street Journal is running an article suggesting that "the next few years will be a return to a simpler and possibly less-profitable time" for the big banks. But I wonder whether that is true when you take everything into account.

The basic thrust is that the banks will be holding on to more of the loans they make, rather than turning them into collateralized securities, and that they will do less of the off-balance-sheet lending that they were doing to corporations to put a check on capital costs. And then the article suggests:

The upshot: Bank investors expecting a big rebound in earnings growth after the debacle of 2007 will likely be disappointed. The slowdown is likely to be especially pronounced at some of the biggest banks, such as Citigroup Inc. Bank of America Corp. and J.P. Morgan Chase & Co.

Supposedly this is going to be a "negative" effect on investors. Frankly, I thought that the fallout from all the supposedly insanely profitable activity was negative enough, and that you'd have to be insane to want more of it. Banks writing down tens of billions of dollars in value and needing to find large cash influxes from countries to stem the capital loss in paying off the bad bets? Now that's negative. When everything is tallied, how much of the profit growth still exists? Even that which wasn't written off may have turned, instead, to loss of investor and customer faith, which means a dramatic reduction of good will, reflected in hits on stock price. As the article quoted Gerard Cassidy, an RBC Capital Markets analyst:

The originate-and-sell business model "encouraged reckless lending" that triggered the current mortgage morass, Mr. Cassidy said. Keeping loans on banks' books will help avoid future meltdowns that could torpedo years of profits.

It was also interesting to read about yet another respectable business scam: off-balance-sheet conduits of banks issuing "short-term commercial paper to purchase debt such as corporate receivables, mortgages and auto loans, capturing the difference in rates between the two." Many of the people running these institutions really do seem far too clever for their own good - and for the good of the investors, otherwise known as the people who own the businesses.