Even as bank earnings seem to be recovering from the depths of the crisis, the fact remains that their returns on equity are much lower now than two years ago. Breakingviews notes the example of Goldman Sachs (GS). Back in 2007, when it had its best ever year, its ROE was a whopping 38 percent. In 2009, when it had a comparable year in terms of profits, its ROE will likely be much lower, in the 20 percent range. This is not surprising, given historically low interest rates.

Of course larger reserves and capital requirements restrain risk taking a bit. We'll likely be stuck in a low ROE state given that it will be hard to boost returns after a profitable 2009. Earnings growth may lag next year. Breakingviews notes there is one sure winner for any bank that wants to really boost its ROE and please shareholders: Cut compensation. We'll find out how much they want to please shareholders. 

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