FDIC Resolution Plans For Big Financials Due By July 2

Includes: BAC, BCS, C, DB, GS, IYF, JPM, MS, UBS, XLF
by: Weiss Ratings

We hope Friday's FDIC press release wasn't the only way financial institutions that need to meet the July 2 deadline were notified, because it's awfully short notice.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that bank holding companies with total consolidated assets of $50 billion or more, and nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the Federal Reserve, submit resolution plans each year to the FDIC and the Federal Reserve.

The plans, also known as living wills, must describe the company's strategy for quick, organized resolution under the Bankruptcy Code in the event of material financial distress or failure of the company. Then, the FDIC and Federal Reserve have to review the plan and decide if it's credible and will facilitate the orderly resolution of the company in bankruptcy.

Initial resolution plans will be submitted in three groups on a staggered schedule. The first group which includes U.S. bank holding companies 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, must turn in their initial resolution plans on or before July 2, 2012.

The plans will be divided into a public section and a confidential section. The public section will include information describing the company's core business lines and financial information regarding assets, liabilities, capital and major funding sources.

The public section of the resolution plans will be released by close of business on Tuesday, July 3, 2012.

The FDIC and Federal Reserve will complete a preliminary review for completeness within 60 days, and then review the plans for compliance with regulatory requirements.

The first companies in line to submit initial resolutions include: Bank of America (NYSE:BAC), Barclays (NYSE:BCS), Citibank (NYSE:C), Credit Suisse , Deutsche Bank (NYSE:DB), Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS), and UBS (NYSE:UBS).

These companies are undoubtedly considered the bigger players in the world banking arena. So you might want to take a look at how global bank risk looks by country, region and individual institution. Some of these companies are included in the Weiss Undervalued Global Bank Stock Portfolio as potential investment opportunities.

While there may be nothing new in terms of financial information in the public section of the plans, it's important for investors, financial consumers and professionals to be aware of which banks must report and when. Perhaps the reports will reveal information about interbank and global connectivity that isn't always recognizable in quarterly reports, especially to those who are not financial experts. And, it will be important to watch for signs of whether the FDIC and Federal Reserve find the plans viable.

We think it's a sure bet that no matter how prepared the institutions are to file their reports, at least some of their employees were working hard this weekend to meet the deadline.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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