The Zacks Analyst Blog Highlights: Bank of America, Citigroup, Goldman Sachs Group, Morgan Stanley and JPMorgan Chase

 The Zacks Analyst Blog Highlights: Bank of America, Citigroup, Goldman Sachs
                   Group, Morgan Stanley and JPMorgan Chase

PR Newswire

CHICAGO, July 5, 2013

CHICAGO, July 5, 2013 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Bank of America Corp.
(NYSE:BAC-Free Report), Citigroup Inc. (NYSE:C-Free Report), Goldman Sachs
Group Inc. (NYSE:GS-Free Report), Morgan Stanley (NYSE:MS-Free Report) and
JPMorgan Chase & Co. (NYSE:JPM-Free Report).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of
the Day pick for free.

Here are highlights from Wednesday's Analyst Blog:

Tough Capital Rules on the Way

In order to strengthen the banking sector and mitigate the threats posed by
big banks to the financial system as a whole, the Federal Reserve approved of
stricter capital rules. These capital rules put into practice the Basel III
accords as well as changes necessitated by the Dodd Frank Wall Street Reform
and Consumer Protection Act in the U.S.

Going by the Fed's decision, the capital rules will apply to all depository
institutions, bank holding companies with total consolidated assets of $500
million or more, and banking organizations. Further, the rules are likely to
gain the sanction of the Federal Deposit Insurance Corp (FDIC) and the
Comptroller of the Currency (OCC) as well, in the coming week.

The banks have sufficient time to implement these new capital rules. These
rules are scheduled to be implemented in a phased-in manner, starting 2014
through 2018.

The phase-in period for big banks start from Jan 2014, while for smaller, less
complex banking firms the phase-in period will not begin until Jan 2015.
Notably, at present, savings and loan holding companies with significant
commercial or insurance underwriting activities will not be subject to the
final capital rule.

The New Capital Rules

The capital rules suggest that U.S. banks would need to set aside more capital
as buffer to tide over unexpected losses. Banks will be required to maintain a
new minimum common equity tier 1 ratio of 4.5% of risk-weighted assets (RWAs)
and a common equity tier 1 capital conservation buffer of 2.5% of RWAs
applicable to all supervised financial institutions.

This comes to a total of 7%, which is well above the current requirement of
about 2%. Notably, 90% of the financial institutions with less than $10
billion in assets are expected to meet this new capital requirement rule, as
per Mar 31, 2013 data.

Additionally, the minimum ratio of tier 1 capital has been raised to 6% of
RWAs from the present 4%. Moreover, minimum leverage ratio for all banking
institutions has been pegged at 4%.

Further, for the largest, most internationally active banking organizations –
including Bank of America Corp. (NYSE:BAC-Free Report), Citigroup Inc.
(NYSE:C-Free Report), Goldman Sachs Group Inc. (NYSE:GS-Free Report), Morgan
Stanley (NYSE:MS-Free Report) and JPMorgan Chase & Co. (NYSE:JPM-Free Report)
– the final capital rule includes a new minimum supplementary leverage ratio
that takes off-balance sheet exposures into consideration.

Additionally, the new capital rule enhanced the methodology used for
calculating RWAs, thereby improving the risk sensitivity. Banks and regulators
employ risk weighting to assign varying levels of risk to different classes of
assets, with riskier assets requiring higher capital cushions and less risky
assets entailing smaller capital cushions.

Nevertheless, in a concession to large banks, the Fed has decided to remove a
provision that would have necessitated the banks to hold different levels of
higher capital against a wide range of riskier subprime and other types of
residential loans. The existing provisions weigh residential mortgage
securities in 2 categories of risk – 100% for primary mortgages and 50% for
second lien loans.

Still a Long Way to Go

These rules might limit the flexibility of the banks with respect to
investments and lending volumes. Moreover, such stringent capital rules may
considerably slacken the pace of a worldwide economic recovery in the near
term.

Moreover, higher capital requirements are a plausible concern for smaller
banks, which are already finding it difficult to navigate through the current
sluggish economic environment with increased regulations. While larger banks
can counter such situations with their size, smaller banks whose business
models have already been put to question, might be challenged while adhering
to such capital norms.

A weak capital level is always a threat to the global economy. Needless to
say, meeting new capital rules would act as building blocks for the still
unstable economy. The capital rules will benefit the financial system in the
long run. They will prevent bank failures and involve less of taxpayers' money
for the bailout of troubled financial institutions.

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the Day pick for free.

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