Shares of many banks and securities firms slipped Monday, erasing some of their gains Friday after lawmakers agreed to the bill's final language, which could be voted on by the House and Senate this week.
While bankers still sifting through the legislation said it is less Draconian than they initially feared, a weekend of number-crunching left no doubt that the changes would hurt the bottom line at thousands of banks, brokerage firms and other financial companies.
"This is wrong, and we have one last chance to do something about it," the American Bankers Association wrote in an email to its members, urging them to write opposition letters to members of Congress. Financial-industry lobbyists are aiming at Republicans who voted in favor of the Senate version, hoping to change their position when the final bill comes up for a vote.
"You keep playing until the whistle blows," says ABA spokesman Peter Garuccio.
Inside most banks, the mood already has shifted to assessing how much revenue and earnings are likely to evaporate if the bill becomes law—and how to make up for the forgone money. Keith Horowitz, an analyst at Citigroup Inc., estimated the legislation would reduce annual earnings per share for big U.S. banks by 6%, down from his previous estimate of 11%.
"The rules did not include some of the more worrisome potential outcomes that could severely impact bank profitability or force a new wave of capital raises," Mr. Horowitz wrote in a note to bank-stock investors.
The landmark legislation touches nearly every corner of the nation's largest financial firms by setting new rules on risky trading, derivatives, consumer lending and even debit cards.
Banks contend they would lose billions of dollars in annual revenue from the new rules, warning they would have to increase fees paid by customers.
But several changes that emerged last week could shield financial firms from even bigger turmoil. In particular, banks would be permitted to collect hefty fees from managing hedge funds, private equity and real-estate funds that contain client money as long as they don't invest more than 3% of the bank's capital in the entities. The impact would also likely be muted because some new rules won't go into effect for years.
"While this may lead to further surprises down the line, we see this as important, as financial institutions have time to adapt their business models," Goldman Sachs Group Inc. analyst Richard Ramsden wrote in a report to clients.
David Katz, president and chief investment officer of Matrix Asset Advisors Inc., a money-management firm that owns shares of Bank of America Corp. and Morgan Stanley, said the banks "will be able to work through it." Even though the changes will hurt earnings, stock prices might not suffer because "the banks have been trading so poorly that from current levels, we think there is [buying] opportunity," he said.
Industry lobbyists expect the final bill to easily pass the House.
In the Senate, though, the bill's prospects were clouded Monday by the death of Sen. Robert Byrd (D., W.Va.) and a statement by Sen. Russ Feingold (D., Wis.) saying he won't vote for the overhaul when it reaches the Senate floor.
Meanwhile, Sen. Scott Brown (R., Mass.), who previously voted for the bill along with three other Republicans, indicated Monday he might oppose the final legislation because of a late addition that would levy roughly $20 billion of new fees on banks.
"My fear is that these costs would be passed on to consumers in the form of higher bank, ATM and credit-card fees and put a strain on lending at the worst possible time for our economy. I've said repeatedly that I cannot support any bill that raises taxes," he said in a statement.
In Maine, some bankers and credit unions are applying pressure to Sens. Olympia Snowe and Susan Collins. The two Republicans also voted for an earlier version of the bill. "We want them to go back to the drawing board," said Chris Pinkham, president of the Maine Association of Community Banks, who asked bankers to write letters or make phone calls to the senators.
Maine's credit unions oppose the bill because it regulates fees, known as "interchange," that financial institutions charge to merchants on debit-card transactions.
"We don't support reform as long as interchange is a part of it," says John Murphy, president of the Maine Credit Union League.
Ms. Snowe and Ms. Collins "have been very willing to understand the concerns that have been raised," he says.
A credit-union trade group saw Mr. Byrd's death as an opportunity to push its opposition of interchange-fee regulation.
"Sen. Byrd was a champion of Main Street, and we hope his colleagues will give careful consideration to the harmful impact the interchange amendment could have on the 92 million Americans who depend on credit unions for basic financial services, including debit cards," Fred Becker, president of the National Association of Federal Credit Unions, said in a statement.