U.S. banks are likely to reduce assets to meet planned capital requirements that are akin to an “antitrust action,” said Richard X. Bove, an analyst at Rochdale Securities LLC.
“The central bankers want to limit the growth or break up the western world’s largest banks,” Bove, who is based in Lutz, Florida, wrote today in a note to clients. “Once the new regulations are out, the big banks will shrink.”
Banks deemed too big to fail may be required to hold 2.5 percentage points in additional capital as part of efforts to prevent another financial crisis, the Basel Committee on Banking Supervision said June 25. That buffer would rise to 3.5 percentage points for lenders that grow even larger, it said.
Banks won’t sell stock to raise capital because they currently trade below their book value, Bove wrote. The idea that lenders will retain profits and wait to meet capital requirements that take full effect in 2019 also “makes no sense,” in part because other regulations may impede earnings,
“The central bankers have claimed that these targeted institutions are undercapitalized,” Bove wrote. “This should impact their cost of borrowing. They cannot wait eight years to address the problem.”
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