CHICAGO, March 31, 2011 /PRNewswire/ -- Zacks.com Analyst
Blog features: Automatic Data Processing (NYSE: ADP), UBS
AG (NYSE: UBS), Credit Suisse Group (NYSE: CS),
JPMorgan Chase & Co. (NYSE: JPM) and Citigroup
(NYSE: C).
(Logo:
http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)
Get the most recent insight from Zacks Equity Research with the
free Profit from the Pros newsletter:
http://at.zacks.com/?id=4579
Here are highlights from Wednesday's Analyst Blog:
ADP Sees 201K New Jobs Added
The Automatic Data Processing (NYSE: ADP) employment
survey was a little weaker than expected in March. It shows that
private sector employment rose by 201,000, slightly below consensus
expectations for a 210,000 increase. The gains, however, were
widespread, and if confirmed by the BLS on Friday, would still be a
solid report.
In February, ADP was almost right on the money, but that came
after a few months when its estimates were well off the mark. In
January, it was far too optimistic, showing a gain of 187,000, and
then the BLS only reported a gain in private sector jobs of 50,000
(later revised up to 68,000). In December, ADP was even further off
the mark and reported a gain of 297,000 private sector jobs and the
BLS only reported a gain of 113,000 (later revised up to 167,000)
from the private sector.
Prior to the last three months, for most of 2010, ADP was being
too conservative. However, the ADP numbers are also subject to
revision, and the February gains were revised down to 208,000 from
217,000.
Bank Surcharge: A Recession Vaccine?
With the world still reeling under recessionary shockwaves,
regulatory officials of more than two dozen countries are mulling
over imposing a capital surcharge on the world's largest banks
whose collapse could further threat the global economy, Bloomberg
reported last week. This will be an addition to the new set of
minimum capital standards, known as Basel III, imposed by the world
regulators in 2010.
The convention will adopt tougher measures for banks deemed 'too
big to fail', in desperate attempts to stave off another global
financial crisis and restore public confidence.
As most of the major large-cap banks seem to comfortably
maintain the minimum capital norms mandated by the Basel Committee,
they will never hesitate to take extravagant risks. Also, the
success of regulatory efforts in restoring worldwide financial
stability has created a wrong impression that the government will
save big institutions from failing whenever they are in major
financial trouble. As a result, an additional capital restriction
is needed to nip such institutions' risky indulgences in the
bud.
Surcharge: To What Extent?
Mega banks worldwide may be forced to maintain an additional
three percentage point reserves compared to other financial
institutions under the new restriction. The extra capital surcharge
may range from 1% to 3% of a bank's common equity, the source
said.
The Swiss government was an early bird, proposing to increase
the minimum common equity requirement to 10% from the Basel III
mandate of 7% for UBS AG (NYSE: UBS) and Credit Suisse
Group (NYSE: CS).
Competitiveness to Be Tainted?
Imposing higher-than-average surcharge on major financial
institutions of some countries would give banks of other countries
the benefit of lower capital reserves. For fear of losing
competitiveness in the global market, the affected banks might even
consider shifting their businesses to some other country where the
extra reserve requirement is not in action. Perhaps a centralized
decision would be more effective.
Is There a Deadline in Place?
During November of last year, G-20 nations instructed the Basel
Committee to start framing additional measures for big banks. There
is no concrete clue as to when the regulators of 27 countries --
including China, India, Brazil, Germany, the U.K. and the U.S. -- are going to
impose the additional surcharge on mega-banks. However, the
Financial Stability Board said that it will finalize the structure
of the surcharge by the end of this year.
Position of U.S. Banks
According to the Basel III requirements, banks will have to
maintain a minimum Tier 1 capital ratio as high as 12.0%. This will
comprise a minimum buffer of 6.0%, a conservation buffer of 3.0%
and an additional 3.0% anti-cyclical buffer. The anti-cyclical
buffer will help increase the Tier 1 capital requirements to 12%
during boom times.
Most of the major U.S. banks including JPMorgan Chase &
Co. (NYSE: JPM) and Citigroup (NYSE: C) maintain Tier 1
capital ratios above the minimum level mandated by Basel. Furthermore, since most of the major
U.S. banks have repaid the government bailout money, it should not
be very difficult for these to maintain up to 3% in extra reserves.
The latest stress test results and consequent approvals to hike
dividend yields also back this view.
Unprepared = Unsafe
A weak capital level is always a threat to worldwide economic
well being. Needless to say, such capital standards would act as
building blocks of an already weak economy, with restrictions
ultimately translating to fewer bank collapses and less involvement
of taxpayers' money for bailing out troubled financial
institutions.
Regulators and bankers are bound to disagree over the extent of
positive impact from the new capital rules as there remain other
lingering concerns, including a high unemployment rate,
continuation of residential and commercial real estate loan
defaults and liquidity challenges.
However, many big banking names that run on lower capital ratios
will be forced to maintain higher capital standards, which would
pull the reins on their risky ventures. Consequently, we see the
surcharge as holding long-term promises to economic buoyancy.
Want more from Zacks Equity Research? Subscribe to the free
Profit from the Pros newsletter: http://at.zacks.com/?id=5514.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and
qualitative analysis to help investors know what stocks to buy and
which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly
traded stocks. Our analysts are organized by industry which gives
them keen insights to developments that affect company profits and
stock performance. Recommendations and target prices are six-month
time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides
highlights of the latest analysis from Zacks Equity Research.
Subscribe to this free newsletter today:
http://at.zacks.com/?id=5516
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc.,
which was formed in 1978 by Leonard
Zacks. As a PhD in mathematics Len knew he could find
patterns in stock market data that would lead to superior
investment results. Amongst his many accomplishments was the
formation of his proprietary stock picking system; the Zacks Rank,
which continues to outperform the market by nearly a 3 to 1 margin.
The best way to unlock the profitable stock recommendations and
market insights of Zacks Investment Research is through our free
daily email newsletter; Profit from the Pros. In short, it's your
steady flow of Profitable ideas GUARANTEED to be worth your time!
Register for your free subscription to Profit from the Pros at
http://at.zacks.com/?id=4580.
Visit http://www.zacks.com/performance for information about the
performance numbers displayed in this press release.
Follow us on Twitter: http://twitter.com/ZacksResearch
Join us on Facebook:
http://www.facebook.com/ZacksInvestmentResearch
Disclaimer: Past performance does not guarantee future results.
Investors should always research companies and securities before
making any investments. Nothing herein should be construed as an
offer or solicitation to buy or sell any security.
Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com
SOURCE Zacks Investment Research, Inc.