U.S. Banks Seen Freezing Payouts as Harsher Leverage Rules Loom
By Yalman Onaran
The biggest U.S. banks, after years of building equity, may continue hoarding profits instead of boosting dividends as they face stricter capital rules than foreign competitors. The eight largest firms, including JPMorgan Chase & Co. (JPM) and Morgan Stanley, would need to retain capital equal to at least 5 percent of assets, while their banking units would have to hold a minimum of 6 percent, U.S. regulators proposed yesterday. The international equivalent, ignoring the riskiness of assets, is 3 percent. The banks have until 2018 to fully comply. The U.S. plan goes beyond rules approved by the Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis, which almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of using borrowed money. Bankers say this could trigger asset sales and hurt their ability to lend, hamstringing the nation’s economic recovery. Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics, said the banks would struggle to raise the necessary capital simply by retaining earnings. Banks may have to discontinue some products, pushing “a lot of complex business into the shadows,” she said, referring to less regulated institutions such as hedge funds.