Capital rules heading in right direction but bankers expect to press for more relief

By Tatiana Bautzer

NEW YORK, April 14 (Reuters) – Revised U.S. capital rules that could up hundreds of billions of dollars in excess capital are heading in the right direction, but the industry still expects to push for changes, top banking executives said during earnings this week.

“Regarding capital, we were pleased to see that the recent capital re-proposals mitigated the most severe consequences of the 2023 proposals. However, there are still aspects of the proposed rules that need to be addressed,” JPMorgan CEO Jamie Dimon said in a statement when announcing earnings on Tuesday.

First quarter earnings have offered a key opportunity for analysts and investors to hear from to bank executives on how much capital they expect to free up as a result of changes to draft “Basel” and “GSIB” surcharge rules the Federal Reserve unveiled last month, and whether they believe that is sufficient.

Banks say the money could be plowed bank into lending, in a boon for the economy, although analysts also expect it to fund dividends and share buybacks.

In a letter to shareholders this month, Dimon estimated the bank could release around $40 billion in excess capital, which he said the bank could deploy at “excellent returns” over several years. In a call with reporters on Tuesday, bank executives declined to provide further estimates.

The Fed said last month that capital levels at big U.S. banks would fall by between 4.8% and 7.8% under the softened drafts in a major industry victory that would free up billions of dollars for lending, dividends and share buybacks. But the exact amount of money that may ultimately be released is unclear.

Morgan Stanley analysts estimated in a recent client report that big U.S. banks may be able to release up to $320 billion in capital.

On Monday, Goldman Sachs CEO David Solomon said the bank was encouraged by the new drafts, and expected to feed back to regulators. “We have also been clear that the regulatory framework needs to be transparent and calibrated appropriately to achieve its objectives,” he told analysts.

Citigroup CFO Gonzalo Lucchetti said on a call with reporters on Tuesday the new Basel III rules will be positive for the bank, but declined to estimate how much excess capital could be released.

(Reporting by Tatiana Bautzer; editing by Michelle Price and Nick Zieminski)