J.P. Morgan Overweight On Bank of New York Mellon (BK)

J.P. Morgan Chase & Co. has an Overweight rating and a $36 price target on shares of Bank of New York Mellon Corp. BK. In a note sent to investors J.P. Morgan writes, "Lower rated securitization exposures subject to interpretation. The uncertainty relates to whether the higher capital charge of 1250% risk weighting applies to all securities that are rated below BB- or only those rated below BB- where a bank holds the subordinated tranches of a securitization structure. Therefore, in BK's case, it is unclear whether the highest charge applies to only the Grantor Trust portion (re-Remics) in BK's portfolio or all securities held (such as MBS). See Table 3 on page 3 for details. In our view, BK's entire $5.9 bil portfolio would be subject to the higher capital charge and this would reduce Tier 1 common ratio by about 350 bp to 7.2% assuming cumulative pay-downs of about 30%. According to BK, the highest capital charge only applies to the re-Remic securities and a lesser increase to the rest - under this interpretation, we estimate Tier 1 common ratio to decline by 265 bp to 8.0%. If re-Remics were constant over the next 2 years, which is unlikely, the negative impact on capital would be higher."