An irreverent look at Wall Street
why do you see BAC doubling?
From Morgan Stanley this amImpact on our views: Agreed changes to Baselproposal are less strict than initial ask, as the Committeecontinues its push to deliver a final version ahead of theNov G20 meeting. The big unknown remains theminimum requirement for common tier 1, which weanticipate will be announced by November 12. Severalexpected changes came through (more realistic depositrunoff scenarios, agency paper included in definitions ofliquid assets, probability of commitments to be drawndown rather than entire line, etc.). Implementation oftoday’s proposals may cause banks to acceleratereserve release to reduce DTA, freeing up allowed roomfor MSRs and holdings in unconsolidated financialsubsidiaries.What's new: Today the Basel Committee announcedseveral watered down changes to the Basel III proposal,in their continued effort to reach consensus ahead of theNov G20 meeting. New rules would allow for MSRs,DTAs, and minority interest to separately represent up to10% of common tier 1, not to exceed 15% in theaggregate (initial proposal suggested full exclusion).We estimate the impact on CT1 for our banks based onthe broad strokes of today’s announcement. We expectDTAs will largely diminish for our group by the time thenew policy is implemented in 1Q13. We will continue torefine these estimates as more details are announced.Investment thesis: We have an Attractive view on largecap banks expecting two key drivers over the next 12-18months: declining credit losses and increasing capitalmanagement (higher dividends/buybacks) driving upEPS. Top picks are early cycle consumer credit stocks(BAC, JPM), restructuring stocks (WFC, PNC)
Thanks, Palmoni for the Goldman stuff.
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