Investors were obviously relieved, as a courtroom loss could have led to a flurry of additional lawsuits against the companies.
announced on Monday that Morgan Stanley and
(GS - Get Report)
were set to begin making payments to over 220,000 mortgage borrowers with loans serviced by subsidiaries of the two companies. The payments totaling about $247 million are part of the broad mortgage industry foreclosure settlement with regulators. Checks will be mailed out beginning on Friday, for amounts ranging from $300 to more than $125,000.
In an analysis of the proposal by Senators Sherrod Brown (D., Ohio) and David Vitter (R., La.) last Wednesday to "
walk away from Basel III
" and greatly boost capital requirements for the largest U.S. banks, KBW analyst Frederick Cannon late on Sunday said in a note to clients there was "great variation" in the banks' capital levels by certain measures.
The Terminating Bailouts for Taxpayer Fairness Act would toss out the Basel III agreement -- negotiated by U.S. regulators for several years, with signatories including the U.S., all key European economies, Russia, China, India, Japan and Brazil -- and simply require U.S. "megabanks" with total assets of over $500 billion to raise capital levels to at least 15% of total assets.
Under the Brown-Vitter bill, U.S. banks' assets would no longer be weighted by risk, so the capital requirement for an investment in a junk bond would be the same as the capital requirement for a cash position.
Cannon said in a report to clients that Brown-Vitter had "little chance" of passing, but also showed that even
, with the highest estimated regulatory capital ratio of 8.27% under Brown-Vitter,
would have a very long way to go to comply with the proposed rules
Morgan Stanley reported an estimated Basel III Tier 1 common equity ratio of 9.80% as of March 31, putting it in compliance with the company's full 8.5% Basel III capital requirement years in advance of January 2019, when new capital regime will be fully phased in, according to the Federal Reserve's proposed rules, under the Dodd-Frank banking reform legislation. The Basel III Tier 1 common equity ratio has risk-weighted assets as the denominator.
Under the proposed Brown-Vitter rules, Morgan Stanley's ratio of Tier 1 common equity to total assets would be just 3.93%.
Morgan Stanley's shares have now returned 17% this year, following a 28% return during 2012. The shares trade for 0.8 times their reported March 31 tangible book value of $27.39, and for 8.8 times the consensus 2014 EPS estimate of $2.53. The consensus 2013 EPS estimate is $2.06.
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-- Written by Philip van Doorn in Jupiter, Fla.