The Three Riskiest Banks - American Banker

Nice chart from American Banker comparing various U.S. banks' tangible common equity capital ratio (a highly conservative measure of solvency) and Tier 1 capital ratio (a marginally less conservative but regulator-favored approach).

As you can see, the differences are fairly stark at many U.S banks. Straight up, most U.S. banks are at or close to insolvency by TCE measure, which speaks at least as much to the harshness of the test as it does to the actual financial condition of many of the banks.

Nevertheless, by the TCE measure the "safest" (I use that word advisedly) U.S. banks are JP Morgan (JPM) and U.S. Bancorp (USB). The riskiest banks are Citi (C), BNY Mellon (BK), and Wells Fargo (WFC).

There are lots of reasons why you should (really!) be critical of TCE as a measure of bank solvency, but there is no doubt that skepticism towards bank capital is deserved, so other measures were always going to come forward.

More here.

Comments

[SteveTheHawk:]

Charlie.... dont' be such a twit. Only a moron would click on your apparent spam link. An even bigger moron would click on a link concealed with TinyUrl address.

Feb 24 08:08 PM

[James H. Wang:]

Interesting information, though overall, I'd say that you're right that CECR and Tier 1 capital as under BASIL regulations is inaccurate.

It's far too liberal for the banks.

The problem with these two measures is, conservative as they are, they don't take in the off-balance sheet costs and shadow assets. If we stick those in, I think these banks would not even be in the "solvent" category.

It's part of why these banks all went off-balance sheet. And it's also why we're in the wonderful straits we're in now.

As said, it gives some indication of where we are, but I think (and I think I'm in good company on this) that it's rosier rather than worse.

Feb 25 12:27 AM

[TopTrader:]

Buying banking stocks is like trying to calm down an agitated chimpanzee...you can play around with it for a little while, but, sooner or later you're bound to get your face ripped off. Why would anyone want to buy banking stocks? We saw what happened to Enron when the truth began to come to light about these kinds of SPVs, or off balance sheet entities...now we are just beginning to find out what kind of horrific double-dealing, deceit, and deception the banking executives have been sneaking around in with these mortgage instruments, these slick and slippery corporate crooks are taking their shenanigans and laughing all the way to the bank with it, meanwhile investors are caught holding the bag. Better to be burned just one time by the banking crooks that sold you a teaser rate on a mortgage market they knew was in the midst of collapsing, then to be burned twice by rewarding them with helping them prop up their stock before it's inevitable collapse. I don't advise giving your money to them. They self-made millionaires. Self-made by your loss and your misery and agony. I prefer to buy stocks that will make me money.

Feb 25 04:57 AM

[tizio:]

hmmm, looking at your chart, I'd say SunTrust is safer than either JPM or USB. Am I missing something?

Feb 25 08:52 AM

[jimmy smith:]

One thing: TCE is important (much more relevant to equity holders than Tier 1) but what's really important is how that balances against the types of assets the bank holds on (and off!) its balance sheet. Some banks with really conservative underwriting (and no toxic assets) can survive with lower TCE, and vise versa.

So, you must scrutinize the quality of the loans and other assets. TCE is just one important data point, but not the whole picture. For example, I'm not sure you should be buying JPM on the basis of its TCE because its got a boat load of nastiness on the balance sheet which'll be hitting TCE pretty hard in the upcoming quarters.

Feb 25 12:02 PM

[Augustus:]

Mellon is still facing the Russian situation. That could well take them completely out. Pretty unjustified, but that is the Russian justice system.

Feb 25 12:23 PM

[levin70:]

I like to add perpetual preferreds to common equity when looking at ratios to tangible assets. However, if the preferreds have call provisions into cash or other assets aside from a conversion to common, then treating them akin to debt is preferable (even if the cash call provision is contingency based)

Kind Regards

Feb 25 01:52 PM

[mgcolin:]

What regions does wells fargo write most home mortgages? San Fran is still SO inflated, and Mpls is still inflated as far as that smaller city should cost. Tiny 3 bedroom old houses in good/decent neighborhoods still go for $300K....these houses are still 50% overvalued

Feb 25 10:29 PM

[PeteK:]

Within months, so many Big Banks suddenly became little mini banks.
Or may even disappear from the face of this earth.
Within months, all American Automakers are in deep trouble and facing
bankruptcy. What else and who will be next ?
What's wrong with America ?

Feb 26 03:16 AM

[dixie:]

Paul, you are much too "sensational". Please prove your statement, "most US banks are at or close to insolvency."

Perhaps that is true for the largest ten banks, but aren't you aware that there are many thousands of smaller banks in this country that do not fit this categorization?

Feb 26 09:34 AM

[morning reader:]

JPM is a strong buy and so is BAC...and C, well that's a whole another story.

Feb 26 11:02 AM

[morning reader:]

JPM is a strong buy and so is BAC...and C, well that's a whole another story.

Feb 26 11:04 AM

[Randy_H:]

How about DB and their exposure all over eastern Europe? What do they stand to lose in Estonia alone?

Feb 26 01:53 PM

[Alicia_Finance:]

I think that Sun Trust is the safest bet.

Feb 26 03:28 PM

[The Sim:]

Nationalize or Die!

Feb 27 12:04 AM

[User 305589:]

Almost nobody really has a clue about any one bank - because very few people know how to really analyze them, take up the time and look at all the stuff that is on and off their balance sheets. Yet, gazillions of writers, academics, journalists, politicians and other talking /writing heads somehow feel the need and desire to come up with their opinions and assessments and they are usually in strong language. Even though these are actually, at best, uninformed guesses.
Why can't all they guys and gals simply shut up and keep talking and writing about stuff they understand? they add no value, they don't add anything but another bit of noise.
As if the world wasn't overflowing from noise already.
It's sickening.

Feb 27 09:16 AM

[Dee Trooth:]

Knowing some of the many important, Bank Regulatory Ratios, is necessary if we are to derive useful information from this "well intentioned" article. To be considered Well Capitalized, The B R Rs require that, Tier 1, = 6%; TCR, (Tangible Capital) = 1.5%. as minimums. While these ratios are useful, they aren't a substitute for more research.

Feb 27 12:03 PM

[Alex Salkever:]

Agree with Dee. I remember not long ago people were saying that WFC was a "safe" bank but apparently its balance sheet rapidly degraded from Tier 1 assets to lesser grade. The only way you can find that type of thing out is by closely reading SEC documents and doing deep research. Relying on ratios is like driving a car using only the rearview mirror.

Feb 27 02:59 PM

[Carneades:]

The Coming Bank Dichotomy
We recall from the Panic of last fall, and subsequent imposition of TARP funds upon US banks, that there was at least some degree of clamor from institutions who felt that they did not "need" any TARP money. That resistance movement turned out to be a short lived one indeed, as Paulson and Company did not want to expose an institution as "sick" for visiting the Government trough. The ensuing weeks saw the Government spread TARP funds across the nation, often in a politically selective fashion, to institutions large and small.

Interestingly, today has brought the first announcement of an insitution that has decided to return its TARP money to the Government. Apparently, Iberiabank Corporation of Lafayette, LA has decided that paying 8% for Government money is too expensive. Now, this decision makes complete logical sense. As the populist roar has been amplified, and the punitive Administration rhetoric has revved up, one would only expect that any TARP recipient able to do so would return the money(perhaps the executives are planning to make a deposit on a new Gulf Stream jet this weekend).

We feel certain that many others will follow suit in the coming weeks and months, and choose to settle up with the Government. Of course, only the strong institutions will be in a position to do so. Once this process has had some time to unfold, there should emerge a clear dichotomy between those insitutions who have freed themselves from the shackles of the TARP money, and those who are too feeble to be taken off of life support. The irony is that, in the end, the Government will be unable to prevent the very circumstances it sought to avoid at the onset of the TARP program. The Government's bumbling, onerous oversight will cause the willing and able to flee, while pulling those sick insitutions further into the abyss. This is at least how we see it.

TheValueatRisk.blogspo...

Feb 27 03:20 PM