The Zacks Analyst Blog Highlights: JPMorgan Chase, Bank of America, Citigroup, PNC Financial Services Group and Wells Fargo
CHICAGO, Sept. 5, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the JPMorgan Chase & Co. (NYSE:JPM-Free Report), Bank of America Corporation (NYSE:BAC-Free Report), Citigroup Inc. (NYSE:C-Free Report), PNC Financial Services Group, Inc. (NYSE:PNC-Free Report) and Wells Fargo & Company (NYSE:WFC-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Thursday's Analyst Blog:
Banks Face New Liquidity Rule: Tough on Lenders?
Adding to already stringent capital regulations, U.S. banks now face another rule, which may hamper their lending activities to some extent. The Federal Reserve, along with the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC), has approved the new liquidity rule.
The new rule will ensure that banks do not face liquidity crunch during any financial crisis, so that the 2008 disaster does not recur. First proposed in Oct 2013, the rule also meets the requirements of the Dodd-Frank Wall Street Reform and the Consumer Protection Act.
The Rule
Per the Liquidity Rule, big banks (with at least $250 billion in total assets or $10 billion of foreign exposure) must hold high quality liquid assets (HQLA) that can be easily converted in cash that is equal to or greater than the amount required to run their operations for 30 days in the event of a financial crisis. Starting the phase-in from Jan 1, 2015 the banks must be fully compliant by 2017, and calculate their liquidity on a daily basis.
Further, the rule requires even the comparatively smaller banks (with total assets of at least $50 billion) to hold HQLA that can be used for 21 days. These banks will start phase-in from Jan 1, 2016 and will get two years to fully comply with the rule, calculating liquidity on a monthly basis.
Central bank reserves as well as government and corporate debt form part of HQLA. However, municipal bonds are excluded from HQLA as of now, although regulators are reconsidering the proposal to include the same (read more: Municipal Bonds to Lose Liquid-Asset Status? 2 Banks to Avoid).
The Federal Reserve defined liquidity coverage ratio (LCR) to be the banks' liquid assets, as a percentage of projected net cash outflows at the time of cash crunch.
Separately, the regulators are also seeking comments on a proposal to determine margin requirements for swap trades. The main aim of the rule is to lower risky trades that might trigger another financial crisis.
Impacted Institutions
Banks, on the whole, as per the regulators, will be required to set aside an estimated $2.5 trillion in HQLA. At the same time, the Federal Reserve anticipates nearly 70% of the banks (requiring implementation) to have already met the criteria, albeit a shortfall of nearly $100 billion.
Big banks including JPMorgan Chase & Co. (NYSE:JPM-Free Report), Bank of America Corporation (NYSE:BAC-Free Report), Citigroup Inc. (NYSE:C-Free Report), The PNC Financial Services Group, Inc. (NYSE:PNC-Free Report) and Wells Fargo & Company (NYSE:WFC-Free Report) would be subjected to strict regulations. Further, 20 smaller banks are also expected to be impacted.
According to the first-quarter data, banks such as JPMorgan, BofA and Wells Fargo, among others, already meet these requirements. We believe that many other banks must have added HQLA to their balance sheets during the second quarter so as to comply with the new rule.
Nonetheless, the rule does not apply to non-bank financial institutions that have been designated as systematically important by the Financial Stability Oversight Council, such as GE Capital. Also, the U.S. banking units of foreign banks are not required to follow this rule. The regulators will possibly devise a separate rule for these institutions.
Road Ahead
The primary purpose of the liquidity rule is to make sure that banks are self-sufficient to meet their cash requirements during a financial crisis. This would also entail less involvement of taxpayers' money for the bailout of troubled financial institutions.
On the downside, the HQLA generate very low return and to offset this, banks will likely invest in high-yield loans and securities that are deemed to be moderately risky. Further, the rule is expected to limit the flexibility of banks with respect to investments and lending volumes. Besides, such stringent capital rules may (to an extent) slacken the pace of a worldwide economic recovery in the near term.
Overall, structural changes in the banking sector will continue to impair business expansion. Several dampening factors – asset-quality troubles, mortgage liabilities and tighter regulations – will decide the fate of the U.S. banks in the quarters ahead. However, conformity to the new capital regime will ensure long-term stability and security for the industry.
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros.
Get the full Report on JPM - FREE
Get the full Report on BAC - FREE
Get the full Report on C - FREE
Get the full Report on PNC - FREE
Get the full Report on WFC - FREE
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Logo - http://photos.prnewswire.com/prnh/20101027/ZIRLOGO
SOURCE Zacks Investment Research, Inc.
Share this article