In meeting the deadline for submitting the plans to federal regulators, several banks used the public portion of the resolution plan to argue that the improvements in capital and financial strength they've made since the 2008 financial meltdown significantly lessen the chance that their plans will ever need to be put to use.
Most obvious was Citigroup Inc. (the holding company) and Citibank NA (the bank), which used several pages and two colorful charts to lay out the company's "transformation" from 2008.
"Since the crisis, we have increased our financial strength and liquidity, and it is unlikely that the resolution of Citi will ever be required," the companies said in the plan. "This steady build of resources will allow us to continue to operate and serve our clients through extreme stress scenarios without taxpayer support."
According to its charts, Citibank's common capital was at 6.2% prior to the financial crisis and fell as low as 3.8% during the worst of the crisis. Today, according to the company, it is now at 11.6% and is expected to be 12.5% by the first quarter of next year.
Bank of America Corp. and Bank of America NA said that company "has strengthened its risk culture as evidenced by improvements in consumer and commercial credit quality and decreases in market and counterparty risk."
"Since 2009, the company has made substantial progress on resolving legacy mortgage-related issues and, as demonstrated in its public filings, increased reserves for representations and warranties exposures," the plan said.
The living wills were filed Monday, July 2, and the public portions were released late Tuesday. They are the first filed with the Federal Reserve and Federal Deposit Insurance Corp. to comply with a provision in the Dodd-Frank Act intended to make it less likely that big financial companies could ever again be too big to fail and need government bailouts. The plans are aimed at avoiding much of the confusion about how to unwind major financial institutions on short notice that caused the need for bailouts.
Major banks and their holding companies must file a "credible" road map that could be used by a bankruptcy court if they get in trouble.
Nine big banks -- those with $250 billion or more in total nonbank assets and foreign-based bank holding companies with $250 billion or more in total U.S. nonbank assets -- had to submit their plans by Monday. Smaller banks with more than $100 billion in assets and those with more than $50 billion in assets will file in two waves next year.
The nine that just filed are: Bank of America, Barclays plc, Citibank NA, Credit Suisse Group, Deutsche Bank AG, Goldman, Sachs & Co., JPMorgan Chase & Co., Morgan Stanley and UBS.
The banks have to detail their corporate structures and how they can be unwound. Regulators have the authority to reject the plans and demand more specifics or even order asset sales if the institutions' organizational structures are difficult to understand or take apart.
Only a small portion of the plans are public, and regulators had said in advance that they didn't expect much new data in the public version of the plans.
The banks have to spell out the names of material entities; describe their core business lines; provide some financial information on assets, liabilities, capital and major funding sources; describe derivative and hedging operations; list memberships in payment, clearing, and settlement systems; and describe foreign operations and identities of material supervisory authorities -- but don't have to provide much detail in the public portion.
They also have to identify their principal officers; describe corporate governance structure and processes related to resolution planning; and describe material management systems. Finally, while firms don't have to provide much detail on selloff plans publicly, they do have to provide a general description of their resolution strategy, their material entities and business lines and a range of potential purchasers.
Several people who saw the banks' filings, said that indeed, not much of the information made public was new.
"They did not go much beyond the information in 10-Ks, but it's somewhat more organized," said Marcus Stanley, policy director for Americans for Financial Reform, a coalition of labor, civil rights and consumer groups.
He said that it's not at all clear that the traditional bankruptcy process can be used to unwind big banks because of the amount of debtor-in-possession money that would be needed. The Dodd-Frank's Orderly Resolution Process, conducted usually by the FDIC, would be an alternative.
Jaret Seiberg, an analyst for Guggenheim Partners LLC's Washington Research Group, said in an research note that while investors could "pore over the data for several days ... our first blush review suggests few shocks," he said. "Banks basically suggest either turning themselves over to creditors or liquidating the institutions. This should hardly shock investors."
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