This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Big Banks: Inflation Fear Losers

The minimum supplementary Tier 1 leverage ratio under Basel III is just 3%, meaning that large U.S. banks will operate at a serious disadvantage to foreign competitors, if the regulators have their way.

Following the completion of the Federal Reserve's annual stress tests for large banks in March, the regulator announced a "conditional" approval of Goldman's 2013 capital plan. The company didn't announce a dividend increase or new plans to buy back common shares, and was required to submit a revised capital plan to the Fed.

The company estimated that its Basel III Tier 1 common equity ratio under the Federal Reserve's final capital rules was 9.3% as of June 30. This puts it in compliance with the Tier 1 common ratio minimum of 8.5%, years ahead of the January 2019 deadline. However, Goldman didn't provide an estimate for its Basel III supplementary Tier 1 leverage ratio.

During the company's earnings conference call, Goldman CFO Harvey Schwartz gave the excuse that it was "hard to speculate" on how the final leverage ratio requirement will be finalized.

But that didn't stop three other large banks from doing just that, and providing investors with estimated Basel III supplementary Tier 1 leverage ratios as of June 30.

JPMorgan Chase (JPM - Get Report) estimated a 30 Basel III supplementary Tier 1 leverage ratio of 4.7% and predicted compliance with the latest capital rule by the first quarter of 2015, with compliance for its largest bank subsidiary "to follow."

Citigroup (C - Get Report) estimated its Basel III supplementary Tier 1 leverage was 4.9%.

Wells Fargo (WFC - Get Report) CEO John Stumpf said during his firm's earnings call on Friday that "based on our initial review of the leverage ratio proposal issued this week, we believe our current leverage levels would exceed the well-capitalized requirements at both the bank and the holding company."

Analysts took Goldman to task over its lack of disclosure, with Schwartz repeatedly saying the firm was "comfortable" with its initial assessment of the new leverage capital rules.

Morgan Stanley analyst Betsy Graseck asked "On the leverage ratio, when you say you're comfortable, what is your definition of comfortable?" Schwartz simply said "comfortable," after which he said "I'm not trying to be cute with you," after doing just that. He reiterated "Our early read is all of the things we've done on the balance sheet over the past several years have left us reasonably well positioned."
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
C $58.52 0.26%
GS $205.84 -0.19%
JPM $68.38 0.48%
WFC $57.66 0.45%
AAPL $122.75 -0.51%


Chart of I:DJI
DOW 17,667.14 +36.87 0.21%
S&P 500 2,097.09 +3.84 0.18%
NASDAQ 5,101.63 +12.4240 0.24%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs