US banks could release $320 billion in capital with new draft rules, analysts say

NEW YORK, April 8 (Reuters) – Major U.S. banks could release up to $320 billion in capital under revised draft rules announced by regulators last month, Morgan Stanley analysts estimated on Wednesday. Analysts led by Morgan Stanley’s Manan Gosalia wrote in a note that once the new capital rules are implemented, the 36 banks’ estimated excess capital would be $320 billion, 20% above the current $266 billion.

“Clarity on capital rules is an important catalyst for the banking sector,” analysts wrote.

The Federal Reserve said last month that capital levels at major U.S. banks would fall between 4.8% and 7.8% under relaxed “Basel” and “GSIB surcharge” rules, a major industry victory that would free up billions of dollars for lending, dividends and share buybacks. But the exact amount of money that could ultimately be released is unclear.

Morgan Stanley expects banks to start giving preliminary ranges of capital they could release once the rules are in place during their first-quarter earnings releases. JPMorgan CEO Jamie Dimon said in the firm’s latest letter to shareholders that the bank could have around $40 billion in excess capital once regulatory changes are implemented, but added that the draft rules were still “flawed.”

Some analysts believe the implementation won’t happen until next year, but Morgan Stanley has suggested the changes could be completed by the third quarter. Banks are currently reviewing the offers. Morgan Stanley analysts said regional banks will be the biggest beneficiaries of changes to risk-weighted asset calculations as the risk attributed to the loan decreases.

Morgan Stanley analysts said Goldman Sachs and Citigroup would be the standout winners from the reduction in surcharges for global systemically important banks, or “GSIBs.” (Reporting by Tatiana Bautzer; Editing by Michelle Price and Andrea Ricci)