Banking

Biggest U.S. banks would sell off brokerage units in hypothetical bankruptcy

Big U.S. banks said they would chop off Wall Street arms and non-essential units if the companies were to fail, with Charlotte-based Bank of America winding down or selling off its global markets division.
Big U.S. banks said they would chop off Wall Street arms and non-essential units if the companies were to fail, with Charlotte-based Bank of America winding down or selling off its global markets division. jkomer@charlotteobserver.com

Big U.S. banks said they would chop off Wall Street arms and nonessential units if the companies were to fail, with Charlotte-based Bank of America winding down or selling off its global markets division.

Bank of America, Wells Fargo and 10 other banks were more descriptive in the public pages of their living wills released Monday after regulators demanded they beef up the plans or face consequences. Private meetings between regulators and bankers to preview the outlines took place for the first time in recent weeks, according to two people familiar with the discussions.

Last year, the Federal Deposit Insurance Corp. and Federal Reserve told the banks to improve their blueprints after saying lenders had failed to write outlines that could take them through bankruptcies without hurting the broader financial system. JPMorgan, Morgan Stanley, Bank of America and Credit Suisse Group AG were among the firms ordered to amend their plans, which are required under the Dodd-Frank Act.

The strategy at most of the big banks is to keep subsidiaries operating while their parent company goes to bankruptcy court and then sell some of the units. The plans showed many of the companies would cling to their core banks while shedding Wall Street units that trade securities and make markets for clients.

In its filing, Bank of America said in an emergency situation it would shed its global markets division, which trades bonds and stocks for clients. The global banking business, which serves large companies, would see a decline in loans and deposits, but the consumer banking and wealth management units would remain core business lines.

Under its plan, the asset size of Bank of America’s nonbank units would be reduced by about 80 percent, while the size of the banking unit would be reduced by one-third. The overall assets of the surviving institution would fall to $1.2 trillion from $2.1 trillion.

JPMorgan’s hypothetical emergency would shrink it by about a third, according to the publicly released pages of the firm’s annual plan for a failure. Citigroup would slash corporate banking to about $300 billion in assets, cut U.S. retail banking to about $200 billion and sell off broker-dealers, according to its plan.

In its filing, Wells Fargo said in a hypothetical emergency its banking unit would emerge from receivership at about 30 percent of its current size. The parent would plan to sell off businesses, including its Wells Fargo Advisors brokerage unit.

The regulators aren’t expected to make any judgments about the documents for several months. Bloomberg News and Staff Writer Rick Rothacker contributed.

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