How Do The Largest U.S. Banks Stack Up In Terms Of Their Core Capital Ratio?
The six largest U.S. banks have been able to build their capital ratios steadily over recent quarters – helping all of them report a comfortable capital buffer over and above the fully phased-in levels they need to achieve by 2019. At the end of Q3 2016, Morgan Stanley’s CET1 figure was 580 basis points (5.8% points) above the required level, while the gap was a much lower 90 basis points (0.9% points) for Bank of America.
The figures at the end of Q3 2016 and the 2019 fully phased-in target compiled here are as reported by each of these banks in their latest 10-Q SEC filing.
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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 allowed the bank to announce plans to hike dividends by 33% and also initiate a $3.5 billion share repurchase program in late June.
We represent dividend payouts and share repurchases in our analysis of Morgan Stanley in the form of an adjusted dividend payout rate, as shown in the chart below. Note that we represent this payout rate as 0% in the chart for 2008, 2009 and 2012 as the figure was not meaningful. You can understand how a change in Morgan Stanley’s adjusted payout ratio affects its share value by making changes here.
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 Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup
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