First the good news: the following numbers are not as bad as they might have been.
Now the numbers, courtesy of Jason Goldberg at Barcap:
C is expected to have the most assets coming back on balance sheet ($154B), followed by BAC ($121B), JPM ($100B) and WFC ($48B). These figures are smaller at BK ($7B), PNC ($6B), FITB ($2B) and STI ($1B). C was the only major bank to provide its expected retained earnings hit ($7.8B; $12.5B less $4.7B DTA), while we backed into BAC ($6.7B) and JPM ($3.5B) given they disclosed the expected capital impact and peg WFC in the sub-$1 billion area. With respect to tier 1 capital ratios, the anticipated reduction at C is 132bps (151bps w/ ABCP), followed by 63bps at BAC (67bps), 22bps at WFC (23bps), and 40bps at JPM (48bps).
We’re talking FASB Statements Nos 166 and 167 here, together with amendments to Interpretation No 46 – collectively, the accounting diktats covering all those variants of the off-balance sheet vehicle, or Qualifying Special Purpose Entities.
From next year, just four banks — Bank of America, Citigroup, JPMorgan and Wells Fargo — will see about $443bn of previously securitised assets return to their respective balance sheets, according to Barclays. Previously, Goldberg and his colleagues had been expecting a $550bn balance sheet backdraft, but some pretty intense discussions with accounting regulators seem to have bought the banks a little wiggle room.
Specifically, there has been a deferral of certain rule changes that previously appeared to snare the various mutual, venture, hedge and private equity funds launched by banks. The argument seems to have been that the banks shouldn’t have to hold capital against assets that were never owned or considered a financing source.
But isn’t that the point? During the Crunch, banks found themselves bailing out certain funds — notably money market funds threatening to “break the buck” — simply to protect their own reputations and/or to try to stem contagion.
Memories are short.
Related links:
FDIC saves securitisation – FT Alphaville
Annals of unintended consequences, FDIC and FAS 166/7 edition – FT Alphaville
Quo vadis QSPEs? – FT Alphaville