As Greece flirts with default, the focus in the U.S. is shifting to the capital strength of domestic banks with plenty to lose.
DealBook's Peter Eavis reports that five of the biggest U.S. banks, including JPMorgan Chase and Goldman Sachs, have more than $80 billion exposure to the riskiest European sovereigns — Greece, Ireland, Italy, Portugal and Spain. And the credit default swaps the banks bought to protect themselves against a credit event may never pay out.
But there's more to worry about than Europe, based on a handy new note from Royal Bank of Canada that details the capital ratios of the 20 biggest US banks in the fourth quarter of 2011.
It shows a rise in the banks' average Tier 1 capital ratio to 10.45 percent, from 10.29 percent in the third quarter, reflecting divestments and capital raising throughout the industry.
But under the incoming Basel III capital rules, which are set to drag down the average Tier 1 ratio to 9.00 percent, some of the largest lenders, which tend to lag regional firms, will need to do more to meet the new 8.5 percent requirement.
While non-performing assets and charge-offs generally declined in the fourth quarter, any turnaround could also force banks to raise more capital in stressed markets — and there are already plenty of jitters.
20. M&T Bank Corporation
Current Tier 1 capital ratio: 6.86% (down from 6.87% in Q3)
Under Basel III: NA
With the lowest capital ratio of all the major banks studied by RBC, M&T suffered a rise in charge-offs in the fourth quarter (to 0.50 percent of average loans, from 0.39 percent in the quarter earlier) but reduced its non-performing assets to 2.70 percent of all loans (from 2.90 percent in Q3).
Source: RBC
19. Regions Financial Corporation
Current Tier 1 capital ratio: 8.50% (up from 8.16% in Q3)
Under Basel III: 7.70% (unchanged)
Regions Financial pushed down its non-performing assets to 7.96 per cent of total loans in the fourth quarter (from 8.19 percent during the previous quarter), and also improved charge-offs to 2.16 percent of average loans (from 2.51 percent).
Source: RBC
18. US Bancorp
Current Tier 1 capital ratio: 8.60% (up from 8.47% in Q3)
Under Basel III: 8.20% (unchanged)
A recovery in problem loans helped lift US Bancorp's fourth-quarter profit, as non-performing assets fell to 3.27 percent of total loans (from 3.56 percent in the previous quarter) and charge-offs declined to 1.16 percent of average loans (from 1.38 percent).
The bank expects further credit improvements as the U.S. economy strengthens.
Source: RBC
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See Also:
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- Jamie Dimon NAILS It On Europe And The ECB