JPMorgan Chase & Co.’s $2 billion loss on synthetic credit securities bolsters the case of banking critics pushing for tighter regulations on proprietary trading, SunTrust Banks Inc. Chief Executive Officer William Rogers said.
“It is a black eye for the industry,” Rogers said in an interview with Bloomberg Television’s “In the Loop” from Atlanta. “It would certainly embolden those on the Volcker side of that equation,” referring to the so-called Volcker rule setting restrictions on trading.
Senator Carl Levin, Democrat from Michigan and co-author of the rule, said May 11 the JPMorgan loss was a “stark reminder” to regulators drafting a proprietary trading ban as part of the Dodd-Frank act. JPMorgan, Goldman Sachs Group Inc. and Morgan Stanley have lobbied to expand exemptions included in the initial proposal, complaining that the measure is so broad and ill-defined that it will increase risks for clients.
The chief executive of Atlanta-based SunTrust said he had “reached out to our board” after JPMorgan’s disclosure to explain the regional bank had “very modest exposure” to the market for credit derivatives.
“For SunTrust, Volcker is not the big issue for us,” Rogers said. “Our trading activity is really client oriented and client directed. So while that force would be more emboldened, I am not really worried about the financial immediate impact on SunTrust.”
Rogers said the any concern over the loss at JPMorgan should be tempered by the institution’s size. Noting the bank’s market capitalization of $142 billion, “$2 billion relative to JPM’s total cap is a small number,” he said.
JPMorgan CEO Jamie Dimon, who said the company made “egregious mistakes,” deserves credit for how he has handled the disclosure and crisis, Rogers said.
“I am not sure Jamie Dimon is seeking my advice on how to handle a crisis, but he met it head on and I think that is what CEOs are supposed to do,” he said. “Your personal credibility and your company’s credibility is on the line.”
Rogers also said SunTrust will resubmit a capital plan to the Federal Reserve after an initial proposal was not accepted by the central bank in March following its “stress test” reviewing how the lender would fare in a several economic slump.
The new plan will incorporate results from “a really good first quarter at our company” and will benefit from more clarity in how the Fed has calculated losses from its recession scenarios.
“We have a much better understanding of the modeling, more transparency” from the Fed, he said. “That will help us build a better internal system and a better ability to respond.”
SunTrust’s Tier 1 common capital ratio would fall to 4.8 percent if the lender carried out capital plans submitted to the Fed, below the central bank’s minimum requirement of 5 percent, according to the test results. Capital plans can include dividend payouts, stock repurchases and share sales.
Shares of SunTrust have risen 34 percent this year through May 11, nearly double the 18 percent gain for the KBW Bank Index. SunTrust has operations in Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, West Virginia and the District of Columbia.
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