jpm-global banks-too big to fail-running the numbers-100217.pdf
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1、Europe Equity Research 17 February 2010 Global Banks Too Big to Fail? Running the Numbers J.P. Morgan Global Research Nick ODonohoe Global Head of Research J.P. Morgan Securities Ltd. Banks Carla Antunes da SilvaAC (44-20) 7325-8215 carla.antunes- Amit Goel, CFA (44-20) 7325-6924 J.P. Morgan Secur
2、ities Ltd. See page 41 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could
3、affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. In this document we run a scenario analysis to see what the impact would be in a scenario where all the regulatory proposals currently being discussed were to bec
4、ome a reality. On our estimates, the sum of the current proposals would see RoE for global banks drop from 13.3% to 5.4% in 2011E with the UK banks being the most impacted, followed by the Europeans and then the US banks. Whilst investment banking has been one of the main focuses of regulation, it a
5、ppears that returns for retail banks may be impacted to the same extent. At these levels of return, we believe that it would be difficult to attract private capital to fund growth, and so product pricing would have to increase substantially. The rising cost of doing business could have significant n
6、egative ramifications on the global economy. In order to return to similar levels of profitability as per current forecasts we estimate that pricing on all products (retail banking, commercial banking and investment banking) would have to go up by 33%. If we were to see the sector RoE at 15%, this w
7、ould imply that pricing of financial product including fees and interest income would have to increase by 39% across the board. The European IBs would have to increase pricing the most, whereas retail banks with their higher cost efficiency would see a lower impact. Capital needs for the global bank
8、s in our report would be approximately $221bn higher on the back of the new measures which is equivalent to 19% of our estimated tangible equity in 2011E. Geographically the higher capital needs would be split 41% for the UK with $91bn of additional capital needs and 39% for Europe with $86bn, follo
9、wed by the US with $44bn additional need. The banks with significant investment banking operations that have moved to a Basel II standard would be the most impacted, as well as those with substantial insurance subsidiaries. Limited offset from reduced compensation we model the extreme case where emp
10、loyee variable costs are cut to zero in IB operations (implied 35% compensation revenue ratio average vs. 45-50% historically). Even in this scenario, product pricing would still need to increase by 26% to achieve constant RoEs, or 35% to achieve 15% RoEs. Costs could be reduced by $19bn compared to
11、 $110bn gross loss of earnings from all of the regulatory proposals. Furthermore, this would benefit investment banks relative to retail banks as retail banks have more fixed costs, implying pricing increases in retail/commercial banking would have to be disproportionately larger. 2 Europe Equity Re
12、search 17 February 2010 Carla Antunes da Silva (44-20) 7325-8215 carla.antunes- Table of Contents Executive Summary .3 Putting It All Together6 Impact on Capital11 Product Pricing Impact12 How much can compensation offset this?.15 J.P. Morgan Methodology22 1. Separation of Activities23 2. Increasing
13、 Capital Requirements26 3. Increasing Liquidity Requirements.29 4. Gross leverage ratios.31 5. Accounting33 6. Taxes.34 7. Recovery and Resolution Planning 36 3 Europe Equity Research 17 February 2010 Carla Antunes da Silva (44-20) 7325-8215 carla.antunes- Executive Summary How to reshape the worlds
14、 banks and ensure financial stability has taken centre stage, and will likely continue to dominate the debate over the foreseeable future as we emerge into the reconstruction phase post the financial crisis of the last couple of years. In this third and final report of the series of Too Big to Fail
15、(TBTF) we have tried to estimate the potential financial impact of the current proposals on global banks as we believe it is important to have a holistic and cumulative view of the measures being discussed, rather than merely a piecemeal approach, especially given the fact that there are several dif
16、ferent regulators, each of them trying to address the same issue from a slightly different angle. On our estimates, the sum of the current proposals as they stand would see RoE for global banks drop from 13.3% to 5.4% in 2011E. Geographically, we see the UK banks being the most impacted, followed by
17、 the Europeans and then the US banks. Whilst investment banking has been one of the main focuses of regulation, it appears that returns for retail banks may be impacted just as much. At these levels of return, we believe that it would be difficult to attract private capital to fund growth, and so pr
18、oduct pricing would have to increase. The rising cost of doing business could have significant negative ramifications on the global economy, depending on the elasticity of demand. On a bank specific level, we see biggest decline in the UK banks, in particular RBS and Lloyds Banking Group, which woul
19、d see negative returns largely a function of increased funding costs from the removal of implicit government guarantees and extension of funding duration. On our analysis, the least impacted would be the US banks as they appear to have less of an impact from BIS III, they already operate with levera
20、ge limits and, accounting wise, they have higher NPL coverage levels. Santander would also be one of the least impacted, on our estimates. In order to return to the same levels of profitability in current estimates we estimate that pricing on all products (retail banking, commercial banking and inve
21、stment banking) would have to go up by 33%. If we were to see the sector RoE at 15% this would imply that pricing of financial product including fees and interest income would have to increase by 39% across the board. For a 15% RoE we estimate the European IBs and UK banks would have to increase pri
22、cing the most at 60-80%. Capital needs for the global banks in our report would be approximately $221bn higher on the back of the new measures which is equivalent to 19% of our estimated tangible equity in 2011E. Geographically the higher capital needs would be split 41% for the UK with $91bn of add
23、itional capital needs and 39% for Europe with $86bn, followed by the US with $44bn additional need. The banks with significant investment banking operations that have moved to a Basel II standard would be the most impacted, as well as those with substantial insurance subsidiaries. 4 Europe Equity Re
24、search 17 February 2010 Carla Antunes da Silva (44-20) 7325-8215 carla.antunes- The most meaningful impact in terms of regulation appears to be the area surrounding taxes. On our estimates, the Tobin tax, whilst having a negative impact on the banks profitability, does not translate into greater tax
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