Bank of America Corp (BAC), Citigroup Inc (C), JPMorgan Chase & Co. (JPM): Are Big Banks Becoming Utilities?

Big banks already meet Basel III capital requirements

Most big banks in the U.S. already meet the stricter new capital requirements. At the end of the first quarter of 2013, Bank of America Corp (NYSE:BAC)’s Tier 1 common capital ratio on a Basel III fully phased-in basis was estimated at 9.42%. Citigroup Inc (NYSE:C)’s estimated Basel III Tier common capital ratio at the end of the first quarter of 2013 was 9.30%. JPMorgan Chase & Co. (NYSE:JPM)’s was 8.9%.

In addition, most large U.S. banks meet the leverage ratio requirements set under Basel III. However, if the Fed raises the leverage ratio requirements for big banks, some of them may have to reduce their assets.

So are big banks turning into utilities?

Not really. Even if the Fed’s 6% leverage ratio requirement is implemented, big banks will still remain highly geared. In fact, major U.S. banks already have leverage ratios close to what the Fed is planning to implement. Nonetheless, banks have been generating decent returns on equity and earnings growth.

In the first quarter of 2013, Bank of America Corp (NYSE:BAC)’s net income stood at $2.6 billion, or $0.20 per share, compared to $653 million, or $0.03 per share reported for the same period in the previous year.

At Citigroup Inc (NYSE:C), net income in the first quarter of 2013 was $3.8 billion, or $1.23 per share, up from $2.9 billion, or $0.95 per share reported for the same period in the previous year.

JPMorgan Chase & Co. (NYSE:JPM), meanwhile, registered net income of $6.5 billion in the first quarter of 2013, which was a record.

With the implementation of new capital rules, the days of high return on equity at banks like the one seen prior to the crisis are probably over. However, the banking business model prior to the crisis was unsustainable anyways. The new capital rules have made the banking system more robust, and made big banks a more attractive proposition.

The article Are Big Banks Becoming Utilities? originally appeared on Fool.com and is written by Varun Chandan.

Varun Chandan Arora has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, Citigroup Inc (NYSE:C) , and JPMorgan Chase & Co (NYSE:JPM). Varun is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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