June 28, 2010 / 8:22 PM / 8 years ago

UPDATE 2-Goldman says bill to hit big banks' profit by 13 pct

* Goldman sees 5 pct hit on regional banks’ profit

* Asset managers may also feel the pinch: Goldman (Recasts; adds details from Goldman Sachs note)

June 28 (Reuters) - Goldman Sachs analysts said the U.S. financial reform bill could dent the earnings of big banks by as much as 13 percent, while their regional counterparts may have to brace for a 5 percent hit.

BofA Merrill Lynch said a new levy on large banks and hedge funds to raise $19 billion to cover the costs of the legislation will hit banks’ annual normalized earnings per share by 2 percent to 3 percent.

Goldman said the new levy will hurt a select group of financial firms with assets over $50 billion, including banks and insurance companies and also hedge funds managing more than $10 billion.

The brokerage expects asset manager Och-Ziff Capital Management Group (OZM.N) to be the most impacted by the regulation among public managers, followed by BlackRock Inc (BLK.N) to a smaller degree.

However, the reform is largely positive for the exchanges and for the inter-dealer brokers and electronic trading companies, the brokerage said. “We see exchanges such as CME Group (CME.O), Nasdaq OMX Group Inc (NDAQ.O), and Intercontinental Exchange INC (ICE.N) as beneficiaries of the reform, and believe more activity will shift onto their platforms over time,” the brokerage said in a note to clients.

BofA Merrill Lynch said rating agencies may review many large banks with the passage of the U.S. financial reform bill, but most banks will see no downgrade or at the most a cut of one long-term debt rating.

Credit rating agencies Moody’s Investors Service and Standard & Poor’s had warned that U.S. regulatory reform could spark bank downgrades as it removes government support for the debt, which currently provides a boost of several notches to the ratings over their stand-alone credit profile. [ID:nN03254966]

The largest threat to bank ratings in the financial reform bill is a provision that gives the federal government an option to liquidate large banks rather than bail them out.

On Friday, U.S. lawmakers hammered out the last pieces of sweeping financial reform, agreeing to rules that require banks to hold more capital and put new curbs on derivatives dealing and proprietary trading. [ID:nN2593529].

“Ultimately, we believe that some of the increased regulatory and legal burdens will be passed on to customers either in the form of annual fees or higher spreads on lending,” Goldman said. (Reporting by Tenzin Pema and Dinesh Mehta in Bangalore; Editing by Don Sebastian and Vyas Mohan)

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