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Wall Street firms could see a big boost to their bottom lines this year thanks to a rule change. An SEC regulation passed in 2004 will allowed firms to set aside less money in reserve so Wall Street can better compete with financial firms in other countries.

Investors are underestimating the benefits of "alternative net capital requirements," a regulation passed by the Securities and Exchange Commission in 2004 to keep Wall Street firms competitive with their counterparts in the European Union, said Brad Hintz, an analyst at New York-based Sanford C. Bernstein & Co. Profits will get a boost in the second half of 2007, depending on how fast the five firms shift their capital, he said. U.S. commercial banks are receiving a similar break from the Basel II agreement, set to take effect as early as next year.

"They're all increasing capital at risk because the new capital requirements allow it," said Hintz, a former chief financial officer at Lehman. "As the transition to the new capital rules is completed, they'll have more room to do so, and that will help their profit."

Posted by edelfenbein at June 12, 2007 6:30 AM