Latest news with #S&P500BanksIndex
Business Times
14 hours ago
- Business
- Business Times
Wall Street forecasts windfall for big US banks from Fed plan to ease leverage rule
[BENGALURU] Large US global banks can expect as much as US$6 trillion in additional balance sheet capacity and billions in freed up capital under a Federal Reserve plan to relax leverage rules, Wall Street brokerages estimated on Thursday (Jun 26). The US Fed unveiled a proposal on Wednesday that would overhaul how much capital large global banks must hold against relatively low-risk assets, as part of a bid to boost participation in US Treasury markets. Shares of JPMorgan Chase advanced 1.3 per cent, Morgan Stanley 1.2 per cent and Goldman Sachs 1.6 per cent, while Bank of America added 1 per cent and Citigroup 1.5 per cent. The S&P 500 Banks Index, which tracks large-cap US lenders, rose 1.4 per cent. The plan, approved by a 5-2 Fed vote, marks the first in a possible series of deregulatory moves led by the central bank's new vice-chair for supervision, Michelle Bowman. The proposal would reform the so-called 'enhanced supplementary leverage ratio' so that the amount of capital banks must set aside is directly tied to how large a role each firm plays in the global financial system. 'SLR reform is the first of many capital proposals we expect over Michelle Bowman's tenure,' Morgan Stanley analysts led by Betsy Graseck wrote in a note. It forecast that the proposal could free up US$185 billion for banks under its coverage. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Treasury market boost? The supplementary leverage ratio requires banks to hold capital against all assets equally, including low-risk US Treasuries – an approach critics said could discourage banks from holding government debt and limit their role in key funding markets. Goldman Sachs analysts expects the rule change to free bank balance sheets by up to US$5.5 trillion. 'The changes to the SLR calculation should increase the availability (and potentially lower the cost) of short-term, secured financing for market participants, improving liquidity in financial markets and the US treasury market in particular.' Fed officials described the changes as a necessary fix to a rule introduced after the 2008 crisis, saying the leverage requirement had grown over time to occasionally limit bank activity, especially as government debt surged in recent years. 'The Fed's proposal to calibrate eSLR should give the banking system meaningful capacity to expand its balance sheet in low-risk assets,' analysts at brokerage Barclays said. 'It makes sense for banks to utilise the theoretical leverage capacity as long as the return from investing in low-risk assets/activity is sufficient,' they said. REUTERS
Yahoo
06-06-2025
- Business
- Yahoo
Unshackled Wells Fargo Fights to Regain Momentum Lost in Penalty Box
Wells Fargo shares rose over 2% early Wednesday, hitting a three-month high, after the Federal Reserve lifted an asset cap imposed following regulators' determination that the bank had exploited its own customers. The stock, a little hot out of the gate, spent the rest of the day ticking downward and, by the time the closing bell rang, had fallen 0.3% for the day. While a banking juggernaut may have been unshackled to pursue a determined growth strategy, some Wall Street observers think its ambitions are already priced in. READ ALSO: Tariffs Deliver Record Drop in US Trade Deficit and Circle Spirals Upward in $1 Billion IPO There was a period in the late 2010s when Wells Fargo tallied up more scandals than the National Enquirer, the most notorious being when its employees juiced sales numbers by setting up millions of fake deposit and credit card accounts in customers' names without their consent. US regulators got so fed up that they imposed a $1.95 trillion asset cap in 2018, ordering the lender to keep its balance sheet frozen at 2017 levels. Obviously, that left the lender — which Bloomberg estimates lost out on $39 billion in profits under the cap — hamstrung for seven years in the face of fierce competition. From the end of 2017 to March of this year, JPMorgan Chase's assets grew from $2.5 trillion to $4.3 trillion, while Bank of America's rose from $2.3 trillion to $3.3 trillion. Now, Wells Fargo is free to pursue growth, which post-scandal CEO Charlie Scharf has been plotting for years: Once home to the largest US mortgage operation, Wells Fargo has retreated from the multi-trillion-dollar sector under Scharf, who has sold the bank's asset management business, corporate trust division, student loan portfolio, rail equipment leasing unit, and most recently, the bulk of its commercial mortgage-servicing unit. What he's positioned for expansion are trading and investment banking, which were handcuffed by the cap. Wells Fargo has added over four dozen senior bankers since 2020 and scored a major coup last year when Scharf convinced the departing head of JPMorgan's North American investment banking, Fernando Rivas, to run the San Francisco-based lender's corporate and investment bank. Early results are promising: Investment banking fees grew 62%, investment advisory fees 13%, and trading revenues 10% in 2024 — though Wells' operations are a fraction of the size of JPMorgan's. Taking Stock: Apart from the muted performance on Wednesday, Wells Fargo shares have climbed 7.3% in 2025, outperforming the 4.3% gain by the S&P 500 Banks Index. But that explains why some investors are cautious. HSBC analysts noted in a report that 'markets have been increasingly pricing in the asset cap removal, possibly limiting near-term upside.' Shares are already up 28% in the past year. JPMorgan analysts, for example, kept their $73.50 price target after the news of the cap removal. But others on Wall Street are betting Wells Fargo will muscle its way higher as it beefs up investment banking operations: Bank of America hiked its target to $90 a share from $83 after the asset cap's removal, and Morgan Stanley raised its target to $87 from $77. This post first appeared on The Daily Upside. To receive delivering razor sharp analysis and perspective on all things finance, economics, and markets, subscribe to our free The Daily Upside newsletter. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
