J.P. Morgan on Investment Banks: The Basel III Sequel
Tweet
Share
E-mail
Get Alerts BCS Hot Sheet
Price: $9.60 -1.03%
Rating Summary:
11 Buy, 10 Hold, 2 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 11 | New: 14
Rating Summary:
11 Buy, 10 Hold, 2 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 11 | New: 14
Join SI Premium – FREE
Today analysts at J.P Morgan issued a report that discusses bank capital and risk-weighted assets (RWAs). The report adds some serious weight to talks about convergence of RWAs across global investment banks and a potential Basel 4.
According to the JPMorgan report, Basel Committee’s Standards Implementation Group (SIG) is currently embarking on an initiative to evaluate the consistent implementation of the Basel 3 package and trying to find out if there are large differences in RWA estimates and why.
“We believe this review should lead to convergence of RWAs across banks," noted the report. “This would lead to a change in Basel 3 capital ratios across banks in our estimates and should to an extent allow us to compare capital positions for different banks on a more comparable basis.”
After running a scenario analysis to calculate a RWS using the new model, analyst noted capital deficits of $8.7 billion for Barclays (NYSE: BCS), $6.2 billion for Deutsche Bank AG (NYSE: DB) and $0.7 billion for Credit Suisse Group (NYSE: CS) and UBS (NYSE: UBS).
“Within a European context we would avoid stocks which have material capital deficits to reach JPMe minimum Basel 3 capital requirements on a fully loaded basis by 2013E post our market RWA convergence exercise even after accounting for additional RWA mitigation/legacy asset reductions beyond 2013E,” stated analysts.
The bottom line is that analysts maintain a preference for U.S. banks over European banks but within the U.S. they now have a preference for Morgan Stanley (NYSE: MS) over Goldman Sachs (NYSE: GS). Morgan Stanley was upgraded to Overweight from Neutral and Goldman was downgrade to Underweight from Neutral. Analysts remain Neutral on Deutsche Bank and downgraded Barclays from Overweight to Neutral.
According to the JPMorgan report, Basel Committee’s Standards Implementation Group (SIG) is currently embarking on an initiative to evaluate the consistent implementation of the Basel 3 package and trying to find out if there are large differences in RWA estimates and why.
“We believe this review should lead to convergence of RWAs across banks," noted the report. “This would lead to a change in Basel 3 capital ratios across banks in our estimates and should to an extent allow us to compare capital positions for different banks on a more comparable basis.”
After running a scenario analysis to calculate a RWS using the new model, analyst noted capital deficits of $8.7 billion for Barclays (NYSE: BCS), $6.2 billion for Deutsche Bank AG (NYSE: DB) and $0.7 billion for Credit Suisse Group (NYSE: CS) and UBS (NYSE: UBS).
“Within a European context we would avoid stocks which have material capital deficits to reach JPMe minimum Basel 3 capital requirements on a fully loaded basis by 2013E post our market RWA convergence exercise even after accounting for additional RWA mitigation/legacy asset reductions beyond 2013E,” stated analysts.
The bottom line is that analysts maintain a preference for U.S. banks over European banks but within the U.S. they now have a preference for Morgan Stanley (NYSE: MS) over Goldman Sachs (NYSE: GS). Morgan Stanley was upgraded to Overweight from Neutral and Goldman was downgrade to Underweight from Neutral. Analysts remain Neutral on Deutsche Bank and downgraded Barclays from Overweight to Neutral.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Digital Realty Trust (DLR) Appoints Susan Swanezy to its Board
- JPM sees risk of further negative earnings revisions for Tesla (TSLA)
- Compass Minerals International (CMP) PT Lowered to $15 at Deutsche Bank
Create E-mail Alert Related Categories
Analyst CommentsRelated Entities
Credit Suisse, Deutsche Bank, UBS, JPMorgan, Morgan Stanley, BarclaysSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
