One result of this re-regulation will see larger banks continue to divest assets to try and avoid more punitive rules or exit businesses that no longer provide sufficient return. This is part of a larger reshaping of the Wall Street, or wholesale, end of banking.
Since the credit crisis, Citigroup has been shedding pieces of its global consumer finance operations, including the sale of its final 35% stake in the former Smith Barney brokerage for $4.7 billion to Morgan Stanley this June. In May, Goldman Sachs sold the majority stake in its reinsurance business to high net worth clients for an undisclosed price and in July unloaded its hedge fund administration arm for $550 million to State Street. Also in July Credit Suisse Group sold its private equity and alternative assets business to Grosvenor Capital Management LP for an undisclosed sum. Bank of America has peddled off dozens of branches for an undisclosed price and divested its remaining 1% stake in China Construction Bank for $750 million this month while Barclays plc put its retail business in the United Arab Emirates up for sale. Morgan Stanley and JPMorgan are exploring sales of their commodities businesses.
Further divestments may be on the horizon. In November, the Basel committee will publish more information on the calculation of the proposed global SIFI buffer (another level of capital requirements for SIFI banks). This will enable U.S. SIFI banks to calculate and prepare for their higher loss absorbency requirements, which take effect in 2016. As they are able to better weigh the risks and returns of their business lines, further asset sales or re-pricing of risk could follow.
Spencer says more capital-intensive businesses that banks may seek to divest include commodities, derivatives, fixed income, sales and trading, and non-rated securities.On the flipside, some investment bankers say wealth management remains an attractive sector for acquisitions, as it provides strong fee income without the need for additional capital holdings. Royal Bank of Canada (RY) chief financial officer Janice Fukakusa said in June that the bank was willing to pay up to C$5 billion ($4.8 billion) for wealth acquisitions, with Wells Fargo also voicing an appetite for the business. Historically, U.S. banks have a spotty record in the business. "For large banks, wealth management is attractive because it diversifies their business lines