Apr 14, 2016|
Alison Williams (Bloomberg Intelligence, Banks Fail Test) by The Financial Exchange
Transcript - Not for consumer use. Robot overlords only. Will not be accurate.
Our guest is Allison Williams from Bloomberg intelligence. Five banks failed a test yesterday. They include JPMorgan chase Bank of America Wells Fargo State Street locally here and Bank of New York Mellon. Hi Allison welcomed the show. Aren't. So what does it mean exactly. That these. Banks these five very large banks by the way failed this test. I think it at the end of the date of the business implications for the bank is that they are gonna have. You know work to do it to to try to work with the regulators to try to. And it sort of answer their questions and and come up the procedures that will meet to. You know what the government has is looking for our. JPMorgan yesterday had had commented there obviously they're the banks are struggling through the documents. But basically what they status to date there is going to be a lot of work to meet expectations. But at this point they don't necessarily see it significant impact on their business operations. And that's that's really important with all of these regulations that you know over the years there have spent a lot of regulation that have had a significant impact on the banks to. Not there yet they they're kill on the banks and me the dear you've got people like new cache Carr he's thrown rocks at them. But it was a new cash Carre working for the Treasury Department when he and they forced JPMorgan to take over Washington Mutual and when they forced. Bank of America to take over Merrill Lynch. While. I guess they're there's still a debate in terms if they were foreign talent to the decision as bears and I think many banks both hit their there were some things that they felt like they were forced to do they felt like they were forced to take money. Together obviously a lot of things that one on during a crisis there's been a lot of regulation since the crisis. But I think that you know if you look at one of the key regulations that came out just the stress testing process. Which really came from Tim Geithner who. One of the biggest advocates. They're yelling at the bank and giving the banks money and then trying to restore faith in the financial system with the tranda stress test a new look at this theory detest the US banks. Pat every year and it an area at that stage. Can show that they can under and tell withstand. These very stressful environments I think that chose. A lot of the progress and I think if you look at Yankee use you know you're gonna continue to hear a lot of nighter on capital levels of and as an election yeah. But I think if you look you know we like that it tangible common equity which is. The third the most conservative manager of the bank account capital level. At a 2015 not an annual basis they reach the highest level ever and if you look at them put it managers to and that's compatibility can get. You have this measure as a percent of assets. And at least the highest and apparently of data back to the early eighties. And then impact early 1930s. Eating eating other measures that might be not conservative but sort of the best thing we have to the bank. Really have made a lot of progress then and I if defied all. Note that I'll make time to that day. Yeah well with a lot of any regulation the Basel III. Fully paid common equity tier one. Ratio is considered to be in the again. A very conservative way of looking at bank capital. As a way to bank bank short that capital Bank of America reiterated today that it's really marked the first time. We have all of the US banks under the much more stricter US tools. Meeting meet requirements. Allison is there a move afoot to break up these banks in other words it to brought make the much smaller than where they are now an example might be. You know it with the feds like to see Merrill Lynch spin off from Bank of America. I think we we continue to have these car cause them from Terry and and politicians from their aim to at a let this thing people look at the banks to make. Look back to history and think it was his simpler time but I think it's important to remember that. The world has changed and there's a lot of businesses that are very global now there's a lot of customers that are very global and so it's going to be tough. To serve those customers sometime if you don't have. Global footprint and that I guess the that there is speaking geographically and in terms of business expects. You know what that there is there a point that Jamie dynamic that I agree with but it if you look at the diversification. Of these businesses. Get back to be very helpful in terms. Building capital maintaining capital. I think if we look overtime at different lending businesses it's really their wedding band it's really the diversity of those businesses. That help. Not that weakness look at what's happening today without her game. We have. To an extreme stress and term portfolios we had Wells Fargo today. A report saying mattered it was agency can obtain a Bank of America and JPMorgan and and yet to overall basis. Because of help American Jimmer about. They're not seeing it but stresses it would that they were just focused on this one particular problem. Allison have banks effectively become utility stocks. And I I I think that people do like to make that analogy. I would say that obviously did that returned that the banks are not going to be. There you have to have the same opportunity for return on equity that you would have had in the past because of the higher capital both. But you could make the argument that. The banks it's some people might make the argument that banks are these are you and if he believed that then you might assign a higher. Multiples so you have a a lower returns over time. But those were turned. Might not be as volatile. And might not be as risky as they were in the past so. Is there are sort of a lower return by higher multiple trade up. Certainly that's not something we at least team but that's. Something I think to think about. Now that I tender if you Alison thank you very much for your time. That's Alison Williams from Bloomberg intelligence. A tie if it's going to be a tough time to be banker or. I don't have a ton of sympathy I. Why. As I worked in the financial services industry is just that and don't you want the people that behavior industry a bad name to have to deal with those issues. Habit you know here's what happens and and we were under regulated. During the ninety's in the 2000. Value under regulated just portly regulate the regulation that was there was bat. But now in my opinion. Banks are being over rate. And and I think you know when the pain. Here's the problem the pendulum swings and understand why it's politically rate eat and it ended when you're running for office like look at how popular Bernie Sanders and half the reason people this is he says. You know Goldman Sachs is criminal enterprise to meet stupid things he's kind of right about now. Did you see what Goldman did back during the runup to the Christ like and then that that he didn't think there is anything criminal about that. If there's anything criminal about they would have been in jail. Nobody go to jail for how liked it there we've seen plenty of times at big companies that people don't go to jail I think we've seen more of it there. Well they at any rate lately you've got now is you know the banks are in financial institutions are being punished who pays the price you do.