HSBC Edges Ahead Of UBS To Report The Best Core Capital Ratio Among European Banking Giants

by Trefis Team
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Improving market conditions in Europe, coupled with ongoing efforts by the largest European banks to streamline their business models, have helped these banks consolidate their core common equity tier 1 (CET1) ratio figure over recent quarters. While UBS still has the most comfortable CET1 capital ratio margin of 390 basis points (3.9% points) over its regulatory target for 2019, HSBC now has the highest CET1 ratio figure of 14.3% among major European banks. HSBC’s gains are primarily due to the beneficial regulatory treatment of its minority stake in Hong Kong’s Bank of Communications. Notably, German banking giant Deutsche Bank managed to improve its core capital ratio buffer from just 30 basis points (0.3% points) at the end of Q3 2016 to 110 basis points (1.1% points) now.


The figures at the end of Q1 2017 and the 2019 fully phased-in target compiled here are as reported by each of these banks in their latest quarterly reports.

The CET1 ratio is a key quantitative measure used by financial regulators to gauge the strength of a bank. Additionally, regulators around the globe use this metric as a part of their annual stress tests to ensure that a bank’s capital plans for a year do not undermine their capital positions in the event of a downturn. 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.

We represent dividend payouts and share repurchases in our analysis of HSBC 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 the year 2016 because HSBC paid out dividends of over $7 billion and bought back shares worth $2.5 billion while reporting a net income of $1.3 billion – representing an adjusted payout figure of almost 740%, which skews the data. You can understand how a change in HSBC’s adjusted payout ratio affects its share value by modifying this chart.

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