S&P updates global bank risk-adjusted capital ratios but wide variations remain
Standard & Poor’s today updated and corrected some of the results of its first global comparison of banks’ risk-adjusted capital adequacy, first published Nov 23. The affected bans are Allied Irish Banks (to 4.7% from 5.0%) , Bank of America (6.5% from 5.8%) , Danske Bank (6.1% from 5.4%), and UBS (2.4% from 2.2%). S&P said the changes “result from new material information that we have now received. We recalculated the estimated RAC ratio for Rabobank (to 8.3% from 7.8%) due to a computational error. Receipt of new information and a computational error has resulted in a new estimated RAC ratio for BBVA.” (to 6.3% from 5.4% )
S&P also provided additional information about a number of banks: “Our report prompted a lot of interest about the impact of recent capital initiatives by banks on their RAC ratios and, consequently, we are now providing further supplemental information for banks that have announced substantial capital measures since (the cutoff date) of June 30, 2009. These banks are Citigroup, Intesa, Mizuho, Standard Chartered, and UBS.”
S&P said using Tier 1 or leverage ratios for direct comparisons of banks’ relative capital positions can be misleading both at the national and the international levels.
“We found that the average estimated RAC ratio for large international banks was 6.7% as of June 30, 2009, more than three percentage points below their average Tier 1 ratios. As we generate more RAC ratios, the results to date appear to confirm our view that capital is a rating weakness for a majority of banks in our sample.” S&P set a benchmark of 8% as desirable.
The RAC results also illustrate our qualitative opinion that the Tier 1 and leverage ratios are not sufficient to come up with an informed view about individual banks’ capital adequacy.
For details on the RACF, see Methodology And Assumptions: Risk-Adjusted Capital Framework For Financial Institutions (Premium), published April 21, 2009.
“We are, however, also seeing a clear improvement in banks’ risk-adjusted capital positions, compared with the level in 2007. Beyond fulfilling the short-term goals of alleviating market pressure, responding to the uncertain economic environment, and addressing strategic considerations, banks appear to have started to prepare for a future structural increase in regulatory capital requirements as well. Capital raising, conversion of hybrids into common equity, asset disposals, and reduction in risk assets have allowed a number of banks to significantly increase their capital ratios in the past 18 months.”
After the revisions are taken into account, HSBC remained the top-ranked bank as of June 30 with a ratio of 9.2%. Goldman Sachs (8.2%) and Morgan Stanley (8.1%) rounded out the top quintile.
Mizuho Financial Group (2.0%) remained the lowest ranked followed by Citigroup (2.1%) and UBS (2.4%). However, Citigroup’s RAC pro-forma RAC would have increased to 6.1% from 5.9% if its subsequent capital increases were taken into account.
For the full results see S&P Ratio Highlights Disparate Capital Strength Among The World’s Biggest Banks.(Premium)
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