Gold­man, Jpmor­gan over­valu­ing cap­i­tal strength:

The Pak Banker - - FRONT PAGE -

Gold­man Sachs Group Inc, JPMor­gan Chase & Co and Mor­gan Stan­ley lagged be­hind peers in a key mea­sure of cap­i­tal strength used by US reg­u­la­tors to stress-test their re­siliency in a se­vere re­ces­sion.

The three firms submitted more­op­ti­mistic es­ti­mates of their cap­i­tal strength and abil­ity to avoid losses on trad­ing and lend­ing than Fed­eral Re­serve pro­jec­tions re­leased Fri­day for the 18 big­gest US banks. Of the three, the gap was widest for Gold­man Sachs, which pre­dicted that its Tier 1 com­mon ra­tio may fall as low as 8.6 per­cent in a sharp eco­nomic down­turn, com­pared with the cen­tral bank’s 5.8 per­cent es­ti­mate.

JPMor­gan, the big­gest US bank, pro­jected that its key cap­i­tal ra­tio wouldn’t fall be­low 7.6 per­cent, com­pared with 6.3 per­cent es­ti­mated by the cen­tral bank.

Chief Ex­ec­u­tive Of­fi­cer Jamie Di­mon said this year JPMor­gan scaled back its $15 bil­lion share buy­back pro­gram by at least 20 per­cent and hopes to boost the bank’s 30-cent quar­terly div­i­dend.

Mor­gan Stan­ley CFO Ruth Po­rat said in Jan­uary that her firm only re­quested ap­proval for buy­ing the re­main­ing 35 per­cent of its bro­ker­age ven­ture from Cit­i­group Inc.

The dis­par­i­ties — in­clud­ing a gap of 1.3 per­cent­age points for JPMor­gan — raise the risk that some banks may have been too ag­gres­sive while seek­ing Fed ap­proval to dis­trib­ute cap­i­tal to in­vestors through div­i­dends and share re­pur­chases. The com­pa­nies must main­tain Tier 1 com­mon ra­tios of at least 5 per­cent un­der their cap­i­tal plans. The Fed is set to re­lease the re­sults of those re­quests next week. “If you came in with rosier as­sump­tions than the Fed’s own base­line, then you’re def­i­nitely at risk of fail­ure” in the cap­i­tal re­quest, said Christo­pher Whalen, ex­ec­u­tive vice pres­i­dent at Car­ring­ton In­vest­ment Ser­vices LLC. “The Fed is go­ing to push back on those banks.” Spokes­men for JPMor­gan, Gold­man Sachs and Mor­gan Stan­ley, all based in New York, de­clined to com­ment.

Auto lender Ally Fi­nan­cial Inc had a cap­i­tal ra­tio of 1.5 per­cent, the low­est of the firms tested. Detroit­based Ally, which is ma­jor­ity owned by the U.S., dis­puted the Fed’s re­sults, call­ing the anal­y­sis “in­con­sis­tent with his­tor­i­cal ex­pe­ri­ence” and “fun­da­men­tally flawed.”

The re­sults are a pre­lude to the Fed’s cap­i­tal-plan re­view of the same banks sched­uled for re­lease on March 14. Yes­ter­day’s re­sults don’t forecast next week’s be­cause the first test ex­cludes man­age­ment’s plans, a Fed of­fi­cial said Fri­day on a con­fer­ence call with re­porters. Banks have said they were coming into this year’s process more cau­tious even as in­vestors of the six big­gest US lenders were an­tic­i­pat­ing cap­i­tal pay­outs that could to­tal $41 bil­lion. Gold­man Sachs Chief Fi­nan­cial Of­fi­cer Har­vey Schwartz told an­a­lysts in Jan­uary that the firm works closely with reg­u­la­tors to en­sure it has a “con­ser­va­tive cap­i­tal plan.” JPMor­gan scaled back its $15 bil­lion share buy­back pro­gram by at least 20 per­cent and hopes to boost the bank’s 30-cent quar­terly div­i­dend, Chief Ex­ec­u­tive Of­fi­cer Jamie Di­mon said this year.

Mor­gan Stan­ley CFO Ruth Po­rat said in Jan­uary that her firm only re­quested ap­proval for buy­ing the re­main­ing 35 per­cent of its bro­ker­age ven­ture from Cit­i­group Inc. Not ask­ing for a lot won’t help lenders if the as­sump­tions they use aren’t ap­pro­pri­ately cau­tious, said Richard Bove, a bank an­a­lyst with Raf­ferty Cap­i­tal

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