2023-07-10 13:55:39 ET
Societe Generale downgraded megabanks Citigroup ( NYSE: C ) and Goldman Sachs ( NYSE: GS ) to Hold from Buy as the rules for Basel 4 are set to be published in the coming weeks and could drive significantly higher capital requirements.
Although the Federal Reserve's 2023 bank stress tests showed that all 23 banks met minimum capital requirements under a hypothetical recession, thanks to higher net interest income from a year ago, "forthcoming B4 regulations could drive much higher minimum capital requirements" for the lenders analyst Andrew Lim wrote in a note.
To be sure, Fed Vice Chair for Supervision Michael Barr laid out a set of proposals Monday to address the recent bank failures and to bolster the financial system with stronger capital requirements for large banks.
"Our new analysis of how B4 might impact the US banks indicates that it is possible that the inclusion of operational risk in group standardised RWA [risk-weighted assets] and inflation in market RWA will significantly outweigh likely lower credit RWA," the note said. CITI, in particular, and GS could have more material capital weakness vs peers with respect to minimum capital requirements.
C and GS rose 0.4% and 0.8% , respectively, in afternoon trading.
JPMorgan ( NYSE: JPM ), meantime, was also cut to Hold with the stock becoming more fully valued after its recent rally. Shares, though, edged up 0.4% at the time of writing.
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Citigroup, JPMorgan, Goldman Sachs cut to Hold at SocGen