“It’s good to be one of the little guys.” Not often have those words been uttered on Wall Street. The Federal Reserve has approved a plan that will require the nation’s largest banks to abide by stricter capital requirements than had been originally planned. Mid-size and community banks got several breaks.
The plan adopted on Tuesday will force all banks to hold more and higher quality capital. The requirements will be phased in next year for large banks; smaller firms were given a larger window.
Digging deeper, smaller came out way ahead. Under the new rule, banks with more than $10 billion in assets will be required to hold at least 4.5% of those assets in high-quality capital. Banks that wish to return capital to their shareholders through dividend payments and stock buybacks – traditionally larger banks – will need to hold additional 2.5% of assets in high-quality capital by 2019.
Smaller banks received another break when the Fed allowed them to opt out of a requirement that would have forced them to routinely adjust the value of securities in their trading book, a potentially costly proposition. The Fed also noted that, on top of the rule, it plans to introduce four separate proposals aimed at preventing the eight largest U.S. banks deemed "too big to fail" to, you know, fail. Higher leverage ratios and long-term debt requirements are the big two.
With the new rule in place, and four more headed Wall Street’s way, smaller banks will have a bit more leeway with their capital, and can take more risks with what they have in the bank that larger competitors. If you want to swing for the fences, smaller banks now look a bit more enticing.
At-Risk Wall Street Jobs (eFinancialCareers)
Stimulus tapering could have a significant effect on those working in fixed income, lending, private equity and M&A.
Bond, What Bonds? (Barron’s)
Pacific Investment Management Co. saw a record outflow in June. Bond funds are getting whacked.
Where’s the Value? (WSJ)
On average, the 10 states paying the highest investment fees for public-employee pension plans see worse returns than the 10 states paying the smallest fees. It appears high-priced investment managers aren’t providing much bang for the buck.
Ex-Morgan MD to Hire Hedgies (Financial News)
George Kounelakis, the former Morgan Stanley who incorporated start-up ENA Investment Capital last summer, now reportedly plans to hire some 20 people and launch a hedge fund this fall. He’s reportedly found a large U.S. institution to back his latest venture.
Foreign Invader (Bloomberg)
David Ryan, the 43-year-old president of Goldman Sachs in Asia, excluding Japan, will retire at the end of the year. Ken Hitchner, a U.S.-based investment banker at Goldman with no experience in Asia, will succeed Ryan.
A Day in the Life (Wall Street Oasis)
Want to know what it’s like to be an options trader? It sounds like a whole heck of a lot of pressure, with essentially no time for bathroom breaks.
Winners Win (FIN Alternatives)
SAC Capital can’t do anything right, except, of course, generating strong returns. The firm’s flagship hedge fund was up 1.5% last month, besting the S&P and most every other hedge fund.
Buzz Around the Office
S-1 filings are not supposed to be funny. Somehow the Winklevoss twins made comedy out of their Bitcoin Trust prospectus. Impressive.
List of the Day: Name Recognition
If you ever run into a business associate who knows your name, but you can’t remember theirs, try saying this.
- Wow you have a terrific memory.
- What’s your last name again (they’ll likely give you the first).
- Introduce them to someone else you’re with.
(Source: AOL Jobs)