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By Tatiana Bautzer
NEW YORK, April 15 (Reuters) - Morgan Stanley’s capital requirements will remain flat or fall modestly under an overhaul of the U.S. capital regime, its Chief Financial Officer Sharon Yeshaya told Reuters, a win for the Wall Street bank that has pushed hard for reforms.
The U.S. Federal Reserve said last month that big bank capital levels should fall under softened drafts of the Basel III and GSIB surcharge rules it unveiled, freeing up billions of dollars for lending, dividends and share buybacks.
Investors are starting to get a sense of the impact on each bank’s capital, which they put aside to absorb potential losses.
"We expect, or would think that right now, we’d be neutral to modestly positive in terms of a capital release. But the exact math of that will really depend on certain clarifications and what comes out of the final model proposals," Yeshaya said after the bank’s earnings release.
While the new proposed Basel draft would increase Morgan Stanley’s risk-weighted assets, changes to the surcharge levied on global systemically important banks, or GSIBs, would be "noticeably positive," with that buffer falling from 3.5% to around 2.2%, she said. A change in how short-term wholesale funding is treated under the GSIB surcharge should help Morgan Stanley and rival Goldman Sachs, Reuters reported last month.
Overall, the Fed’s approach of assessing the capital rules holistically, including changes to how it runs banks’ annual stress tests, "is something that has helped us," she said.
Morgan Stanley on Wednesday beat Wall Street expectations for first-quarter profit, as the investment bank benefited from a surge in dealmaking and raked in record revenue from its equities trading business, sending its shares up about 6%.
Yeshaya said on the earnings call that a recent change to another key leverage ratio rule had also contributed to boosting its results.
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The capital overhaul, led by Fed Vice Chair for Supervision Michelle Bowman, is the culmination of a years-long Wall Street bank campaign to ease rules introduced after the 2008 financial crisis, which lenders say are excessive and stifling lending and the economy.
Yeshaya, who became CFO in 2021 after heading up investor relations, is one of the bank’s most knowledgeable executives on the capital rules, according to several top executives, and has been actively involved in that fight, public records show.
Morgan Stanley spent $5 million in 2024, its most ever on lobbying in Washington, according to transparency organization OpenSecrets.
According to public Fed meeting records, Yeshaya, often with other Morgan Stanley executives, met at least a dozen times with central bank governors Bowman, Christopher Waller and Jerome Powell, as well as Fed staff, since Governor Michael Barr unveiled the proposals in 2023, which envisaged double-digit capital hikes.
At those meetings, Yeshaya and other bank executives discussed Basel and specific issues such as the effect of wholesale funding on the GSIB surcharge, as well as interactions between the various rules, and the central bank’s annual stress test health checks, the records show. Yeshaya also spoke at a capital conference Bowman convened last year.
Yeshaya has had a 25-year career at Morgan Stanley that began with a summer internship in 2000, and is seen by some inside the bank as a potential future CEO candidate.
On Wednesday, she said banks will continue to give feedback to regulators and that there could be adjustments but, she added on the earnings call, "not everyone’s going to get everything they want."