Standard & Poor’s freshly published comparison of global banks’ risk-adjusted capital (RAC) adequacy made for gripping reading on a chilly Monday morning in New York.
The report contains 22 pages of data, analysis and charts, but if it were to be summed up in a sentence, it would be this one:
The results to date appear to confirm our view that capital is a rating weakness for a majority of banks in our sample.
Other highlights from the report:
- Among the outperformers were HSBC at 9.2 per cent, Goldman Sachs at 8.3 per cent and Canada’s TD Bank at 8.3 per cent. Morgan Stanley came in at 8.1 per cent. According t0 S&P’s model, the 8 per cent RAC level “corresponds to full coverage of the level of stress embedded in our ratio.”
- Citi, UBS and Spanish bank BBVA had RAC ratios well below the average of 6.7 per cent. As at June 30, Citi’s RAC stood at 2.1 per cent, UBS at 2.2 per cent and BBVA at 5.4 per cent. In 2008, the global average was about 5.5 per cent, S&P said.
- Japan’s Mizuho Financial Group had the weakest, estimated at2.0 per cent.
S&P expects average RAC ratios to improve by year-end 2009, “in light of the capital increases and hybrid conversions into common equity performed since June 30, 2009, as well as the asset downsizing exercises of a number of banks”.
Also worth noting:
the Tier 1, leverage, and RAC ratios each give a different picture of banks’ capital position. In some instances, there is a huge gap between our RAC ratio and regulatory ratios.
Looking at a breakdown of these large banks sorted by their country of origin, it appears that U.S. banks have the strongest leverage ratios and the second-highest Tier 1 ratios in our sample, but are close to the average in terms of RAC ratio. Conversely, Canadian, Nordic, Benelux, French, and U.K. banks in our sample have much lower leverage ratios than U.S. banks, but have slightly-to-materially higher RAC ratio levels. For German and Japanese banks in our sample, Tier 1 ratios were close to the average but RAC ratios were clearly lower than the average (see chart 2). The two large Swiss banks both had the highest Tier 1 ratios in this sample, but UBS AG had one of the lowest RAC ratios on June 30, 2009, and the RAC ratio of Credit Suisse Group AG was only slightly above the average.
Full report in the usual place.
Related links:
Stress test capital shortfall could have been $68bn bigger – FT Alphaville
Capitalising on recapitalisation… – FT Alphaville
Contingent capital comes to pass, with a little help from the EC – FT Alphaville