SOURCE: The Bedford Report

The Bedford Report

October 06, 2010 17:44 ET

Major Banks Respond to New International Regulatory Framework

The Bedford Report Provides Analyst Research on Wells Fargo and JPMorgan

TORONTO--(Marketwire - October 6, 2010) -  Unprecedented challenges caused by the global economic downturn and financial regulatory reform have spurred action among Major Banks to find ways to adapt and survive. In September major banks found out they will face yet another hurdle as regulatory officials from 27 countries have came up with a new set of capital standards known as Basel III. The Bedford Report examines the outlook for companies in the Money Center Banks Industry and provides research reports on Wells Fargo & Co. (NYSE: WFC) and JPMorgan Chase & Co. (NYSE: JPM). Access to the full company reports can be found at following links:

According to the Basel Committee on Banking Supervision, Basel III will set a tougher standard for the quality of capital as well as the assessment of risks on a bank's balance sheet. Banks must now maintain a capital ratio of 4.5% plus an additional 2.5% buffer bringing the total to 7% compared to the previous 2%. The regulations don't take effect until January 2013, and banks will then have until January 2019 to fully meet the newly outlined requirements. Some U.S. banks have already expressed concerned about meeting the new standards if Congress passes additional, stricter regulations.

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Basel III is also likely to affect dividend growth. According to the proposals under Basel III, only if a bank operating in a steady economic environment maintains a Tier 1 capital ratio of 12% would it be allowed to pay or increase common dividends. JP Morgan's capital and reserve ratios are substantially above average relative to peers. As such the company's CEO, Jamie Dimon, has announced the company intends to hike its dividend in early 2011. He also expects the company to resume significant share buybacks. JP Morgan peer, Wells Fargo, has a Tier 1 capital ratio of 10.2% at the moment, and pays an annual dividend of 20 cents a share.

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