Barclays on U.S. Consumer Finance: Minimal Impact Expected from Basel III
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Rating Summary:
23 Buy, 23 Hold, 3 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 12 | Down: 23 | New: 22
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Barclays on U.S. Consumer Finance: Minimal Impact Expected from Basel III
Barclays analyst on companies impacted:
American Express (NYSE: AXP): At 4Q10, full implementation of Basel III would have reduced Tier 1 Common by approximately 50 bps to 10.6% (vs. 7% well-capitalized threshold) and Tier 1 leverage by 150 bps to 7.8% (vs. 3% minimum). Tier 1 Common was 11.8% at 1Q11.
Capital One (NYSE: COF): At 4Q10, management disclosed that the company expects to exceed the Basel III minimum common equity ratio, including the capital conservation buffer, in 2011, though it has not provided the pro forma impact on ratios. COF's Tier 1 Common ratio was 8.4% at 1Q11 and is expected to grow to approximately 9% by the estimated closing date of the ING Direct deal at 12/31/11.
Discovery Financial (NYSE: DFS): At 4Q10, Discover's Tier 1 Common ratio would 60 bps lower at 10.8% with full implementation of Basel III, and Tier 1 leverage would have declined 200 bps to 7.9%.
CIT Group (NYSE: CIT) and Hudson City (Nasdaq: HCBK): No disclosure on Basel III impact, though both are very well capitalized (20% and 19% Tier 1 Common ratios, respectively), and we do not view the new capital rules to be a risk. Both companies could also fall below $50B assets this year.
"For our coverage universe, Basel III's primary impact on the calculation of Tier 1 Common is the new 250% risk weight on net deferred tax assets not deducted from Tier 1 capital. The Tier 1 leverage ratio is also significantly affected by a rule requiring a 10% risk weight on undrawn credit card lines."
Barclays analyst on companies impacted:
American Express (NYSE: AXP): At 4Q10, full implementation of Basel III would have reduced Tier 1 Common by approximately 50 bps to 10.6% (vs. 7% well-capitalized threshold) and Tier 1 leverage by 150 bps to 7.8% (vs. 3% minimum). Tier 1 Common was 11.8% at 1Q11.
Capital One (NYSE: COF): At 4Q10, management disclosed that the company expects to exceed the Basel III minimum common equity ratio, including the capital conservation buffer, in 2011, though it has not provided the pro forma impact on ratios. COF's Tier 1 Common ratio was 8.4% at 1Q11 and is expected to grow to approximately 9% by the estimated closing date of the ING Direct deal at 12/31/11.
Discovery Financial (NYSE: DFS): At 4Q10, Discover's Tier 1 Common ratio would 60 bps lower at 10.8% with full implementation of Basel III, and Tier 1 leverage would have declined 200 bps to 7.9%.
CIT Group (NYSE: CIT) and Hudson City (Nasdaq: HCBK): No disclosure on Basel III impact, though both are very well capitalized (20% and 19% Tier 1 Common ratios, respectively), and we do not view the new capital rules to be a risk. Both companies could also fall below $50B assets this year.
"For our coverage universe, Basel III's primary impact on the calculation of Tier 1 Common is the new 250% risk weight on net deferred tax assets not deducted from Tier 1 capital. The Tier 1 leverage ratio is also significantly affected by a rule requiring a 10% risk weight on undrawn credit card lines."
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