Standard & Poor’s triggered something of brouhaha when it published a 22-page report comparing global banks’ risk-adjusted capital (RAC) adequacy.
The report found that several of the world’s biggest banks — including UBS and Citi — fell well short of what S&P considered to be the benchmark that “corresponds to full coverage of the level of stress embedded in our ratio.”
According to S&P, that benchmark was a RAC level of at least 8 per cent. In contrast, and based on data to June 30 2009, the Swiss bank scored a paltry 2.2 per cent, while Citi came in at 2.1 per cent.
Somewhat unsurprisingly, UBS was less than impressed with its result, and issued a snappy retort to S&P. The bank argued the report “was not representative of UBS’s capital position in relation to its peers.”
Specifically, UBS said S&P had failed to take into account SFr6bn in mandatory convertible notes fully converted in August 2009, and another SFr13bn in notes due to convert by March 2010.
Given that S&P only used data up to June 30, UBS’s objections seemed based more on semantics than substance. Nonetheless, S&P — which has a history of quailing in the face of criticism — promised to “clarify matters”.
That clarification landed in the FT Alphaville inbox on Monday, and S&P has indeed revised UBS’s ratio for end June – by a whopping 20 basis points:
the end-June ratio for UBS has changed from 2.2% to 2.4%.
S&P further estimated that the Swiss bank’s RAC ratio would have improved to about 3.9 per cent once the August MCN conversion was taken into account, and to about 7.2 per cent after the conversion in March 2010.
On the other hand, S&P said Citi’s low RAC ratio of 2.1 per cent “would have jumped to a relatively more adequate, but still below average” 6.2 per cent if the bank’s third-quarter capital increases were taken into account.
Sorry, guys. You’re still below average.
Related links:
UBS, Citi and other ‘below average’ banks – FT Alphaville
S&P reverses on its “UBS is below average” bank capital model claim – FT Alphaville
UBS is not a “below average” bank – FT Alphaville