How Do The Largest U.S. Banks Fare In Terms Of Meeting Core Capital Ratio Targets?

+8.30%
Upside
87.96
Market
95.26
Trefis
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Morgan Stanley

At the end of Q1 2016, each of the six largest U.S. banking giants reported common equity tier 1 (CET1) ratio figures in excess of the target figure they need to achieve by 2019. Notably, Morgan Stanley’s CET1 figure was 460 basis points (4.6% points) above the required level, while the gap is less than 20 basis points (0.2% points) for Bank of America and JPMorgan.

AB_QA_CET1_16Q1

The CET1 ratio is a key quantitative measure used by the Fed to approve or reject a bank’s capital plans each year as a part of its Comprehensive Capital Analysis and Review (CCAR) – commonly known as the bank stress tests. A larger difference between the current and target CET1 ratios gives a bank more leeway in handing out cash to investors in the form of share repurchases and dividend hikes. Morgan Stanley’s comfortable margin points to a sizable payback for investors after the Fed declares the results of its stress tests later this month.

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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment/ ask questions on the comment section
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to the full Trefis analysis for U.S. Bancorp | Wells Fargo | Goldman SachsJPMorganMorgan StanleyBank of America | Citigroup

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