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

Strong capital markets activity over the second half of 2016 boosted profits for the six largest U.S. banks, which – coupled with a continued reduction in risk-weighed assets – resulted in an increase in the common equity tier 1 (CET1) capital ratio figures for all of them. While all of these banks have put in considerable effort over recent years to build a comfortable capital buffer, Morgan Stanley stands out with a CET1 ratio which is 590 basis points (5.9% points) above the level it is required to reach by the end of 2019. At the other end of the spectrum, Bank of America still has some work to do, with a buffer of 90 basis points (0.9% points).

The figures at the end of 2016 and the 2019 fully phased-in target compiled here are reported by each of these banks in their latest 10-K SEC filing.

Notably, Bank of America, Wells Fargo and Citigroup reported a sizable reduction in their outstanding CET1 capital over Q4 compared to Q3. This was primarily because the Fed’s rate hike resulted in a reduction in the value of their outstanding debt – something that negatively affected their comprehensive income figure, and consequently their overall shareholders’ equity figure. Although the other banks also incurred this debt-related loss to comprehensive income, their income gains nullified the impact of this on their CET1 capital.

We represent dividend payouts and share repurchases in our analysis of Citigroup in the form of an adjusted dividend payout rate, as shown in the chart below. You can understand how a change in Citigroup’s adjusted payout ratio affects its share value by making changes here.

See Trefis analysis for U.S. Bancorp | Wells Fargo | Goldman Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup

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