Friday, April 24, 2009 1 comments ++[ CLICK TO COMMENT ]++

Tangible common equity ratio for major American banks

Yesterday I mentioned the risk to Wells Fargo shareholders from regulators and shown below is a table listing TCE (tangible common equity) for major American banks (the table is from OptionARMageddon and I can't vouch for the accuracy of it. The source is a bearish site so it likely has a bearish slant.)

As you can see, if you went with this simple TCE calculation, Wells Fargo and Citigroup are at the bottom and at risk of requiring capital injections probably on the order of $15 billion (if 3% TCE is required.) Additional capital may be in the form of new equity or conversion of prefered shares. Wells Fargo's market cap is $88 billion so you are looking at slightly less than 20% of market cap. But that's all assuming a simplistic TCE calculation without considering the supposed superior underwriting and risk evaluation skills of Wells Fargo.

From the table, you can also see how simplistic ratios are misleading. For instance, Bank of NY Mellon seems to be near the bottom of the pack, and seems risky based on the TCE measure. However, my impression, from what little I know of it, is that Bank of NY Mellon is more of a custodial bank and probably doesn't own bad mortgage/credit card/etc assets like others on this list. I could be wrong but my impression is that it is safer than any other bank on this list.


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