More on Basel Rules

January 13th, 2014 11:44 pm | by John Jansen |

I posted this very early this morning about the easing of some of the strident capital rules imposed by regulators via the Basel agreements. Here is  a Merrill Lynch research piece on the topic. They think it is good for banks especially JPM and its bastard offspring Morgan Stanley.

Via Merrill Lynch:

  • Basel leverage eased: Positive for US banks & brokers. More lenient BCBS rules best for JPM and MS. Yesterday at 3pm ET, the Basel Committee on Banking Supervision (BCBS) published a final ruling on the Basel III leverage ratio, easing the calculation of the denominator (more netting & lower credit conversion factors). As a reminder, the earlier BCBS proposals treated the denominator more harshly than the US supplementary leverage ratio proposals (SLR), leading to what we had calculated as anywhere from a 25-70bp haircut to the disclosed US SLR ratios (see previous report here). While there are still differences in the treatment of the denominator, it seems like the BCBS final rules are closer to the US proposals. Net-net, we think the news coming out of Europe is positive for US bank and broker stocks, as it takes the worst case scenario off the table: current proposed US minimums (which, at 5-6%, are higher than the BCBS minimum of 3%) and harsher denominator treatment. In particular, we believe that this release implies the greatest positive incremental impact on the stocks that faced the largest potential gap between US SLR and BCBS calculations: JPM and MS. We think this is especially positive for big US banks, as we believe regulatory uncertainty has played a major role in inhibiting multiple expansion in the space vs. other financial sectors and the S&P. – Erika Najarian, Michael Carrier, CFA, Cynthia Mayer, Mike Lardis, Kevin Senet (Page 9)
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