In a Basel III world, JPMorgan Chase & Co. would have to stockpile 25% more capital, while Citigroup Inc. would have to rethink its equity investments.
(Bloomberg) — In a Basel III world, JPMorgan Chase & Co. would have to stockpile 25% more capital, while Citigroup Inc. would have to rethink its equity investments.
Two of the largest US banks offered more details Friday on what they expect if new capital rules unveiled by regulators in July go into effect without revisions. They’re also stepping up their critiques of the plan and promising a robust push-back from the industry, which is likely to face less capacity for stock buybacks if the rules are passed.
“We will continue to engage and forcefully advocate in the comment period and beyond in a great deal of technical detail,” JPMorgan Chief Financial Officer Jeremy Barnum said in a conference call with analysts Friday. “If it goes through as written, there will likely be significant impacts on the pricing and availability of credit for businesses and consumers.”
US regulators’ plans, which are expected to take years to fully implement, would require banks to set aside more capital, tied to an international overhaul that began in the wake of the 2008 financial crisis. JPMorgan Chief Executive Officer Jamie Dimon in September called a key calculation in the new plans “asinine.” The measures will make certain activities such as mortgages and small-business lending harder for banks, he has repeatedly said.
The proposed rules would increase JPMorgan’s risk-weighted assets by 30%, or $500 billion, and triple the required capital for operational risk, it said in an earnings presentation that devoted two slides to the matter.
“JPM disagrees with the cost-benefit analysis and believes that increases of this magnitude are unwarranted,” the bank said in the presentation. The 19% average increase to capital for the largest banks cited by regulators as part of the Basel III changes “does not tell the full story,” according to JPMorgan.
Read More: Biggest Banks Face 19% Boost in Capital Mandates in US Plan
Citigroup Chief Financial Officer Mark Mason said on a conference call with journalists that the industry will continue pushing for “better understanding” of the rules and potentially offer an alternative perspective.
Mason said the bank is evaluating the pricing of credit offerings and whether equity investments will remain worthwhile if they become substantially more capital-intensive.
“We’re going through all of that, lining up the actions that we want to take as the proposal is finalized, if it’s finalized as it is,” Mason said. “It’s not just us. The entire industry’s going to have to look at what this means for the economics and where the levers are to pull.”
JPMorgan’s $242 billion of capital at the end of September is well above the $200 billion it says it currently is required to hold, and indicates it could easily reach the $250 billion requirement it estimated. But the increase would likely limit how much the bank can hand to shareholders in dividends and buybacks.
Under the proposals, banks with at least $100 billion in assets would have to boost the amount of capital set aside by an estimated 16%. The eight largest banks face about a 19% increase, with lenders between $100 billion and $250 billion in assets seeing as little as 5% more.
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