Impact on our views: Agreed changes to Basel proposal are less strict than initial ask, as the Committee continues its push to deliver a final version ahead of the Nov G20 meeting. The big unknown remains the minimum requirement for common tier 1, which we anticipate will be announced by November 12. Several expected changes came through (more realistic deposit runoff scenarios, agency paper included in definitions of liquid assets, probability of commitments to be drawn down rather than entire line, etc.). Implementation of today’s proposals may cause banks to accelerate reserve release to reduce DTA, freeing up allowed room for MSRs and holdings in unconsolidated financial subsidiaries. What's new: Today the Basel Committee announced several watered down changes to the Basel III proposal, in their continued effort to reach consensus ahead of the Nov G20 meeting. New rules would allow for MSRs, DTAs, and minority interest to separately represent up to 10% of common tier 1, not to exceed 15% in the aggregate (initial proposal suggested full exclusion). We estimate the impact on CT1 for our banks based on the broad strokes of today’s announcement. We expect DTAs will largely diminish for our group by the time the new policy is implemented in 1Q13. We will continue to refine these estimates as more details are announced. Investment thesis: We have an Attractive view on large cap banks expecting two key drivers over the next 12-18 months: declining credit losses and increasing capital management (higher dividends/buybacks) driving up EPS. Top picks are early cycle consumer credit stocks (BAC, JPM), restructuring stocks (WFC, PNC)
why do you see BAC doubling?
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ReplyDeleteImpact on our views: Agreed changes to Basel
proposal are less strict than initial ask, as the Committee
continues its push to deliver a final version ahead of the
Nov G20 meeting. The big unknown remains the
minimum requirement for common tier 1, which we
anticipate will be announced by November 12. Several
expected changes came through (more realistic deposit
runoff scenarios, agency paper included in definitions of
liquid assets, probability of commitments to be drawn
down rather than entire line, etc.). Implementation of
today’s proposals may cause banks to accelerate
reserve release to reduce DTA, freeing up allowed room
for MSRs and holdings in unconsolidated financial
subsidiaries.
What's new: Today the Basel Committee announced
several watered down changes to the Basel III proposal,
in their continued effort to reach consensus ahead of the
Nov G20 meeting. New rules would allow for MSRs,
DTAs, and minority interest to separately represent up to
10% of common tier 1, not to exceed 15% in the
aggregate (initial proposal suggested full exclusion).
We estimate the impact on CT1 for our banks based on
the broad strokes of today’s announcement. We expect
DTAs will largely diminish for our group by the time the
new policy is implemented in 1Q13. We will continue to
refine these estimates as more details are announced.
Investment thesis: We have an Attractive view on large
cap banks expecting two key drivers over the next 12-18
months: declining credit losses and increasing capital
management (higher dividends/buybacks) driving up
EPS. Top picks are early cycle consumer credit stocks
(BAC, JPM), restructuring stocks (WFC, PNC)
Thanks, Palmoni for the Goldman stuff.
ReplyDelete