Basel III Throws a Sucker Punch at Goldman and Morgan Stanley

Basel III may have a bigger impact than expected on Goldman Sachs and Morgan Stanley.

It's not the straight changes to Tier 1 capital requirements that are going to hurt, according to a report out of DB yesterday — it's the regulatory interpretation of risk-weight to varied assets classes that may sting.

Different Wall Street shops have different interpretations of how assets should be risk weighted. If the regulators take a more aggressive view, it could impact how much regulatory capital the banks need to set aside.

Of course, we won’t know for sure until the finalized rules are released. And there isn’t a firm date for when that will happen yet — the hope is next month.

On balance, with some caveats, the DB analysts think things will shake out alright for the players, since banks will have an opportunity to either “rationalize” their models or exit certain businesses entirely if the capital requirements become too onerous.

Perhaps not surprisingly, DB thinks Goldman is ahead of the curve in the sector.

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Stocks in This Post

Goldman Sachs

Morgan Stanley

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