Despite their reputation, Canada’s six largest banks do not necessarily have stronger balance sheets under new global banking rules than their major U.S. counterparts, a new report has found.
In a study of large Canadian and U.S. banks, Canaccord Genuity analyst Mario Mendonca said Canada’s biggest lenders, on average, have lower Tier 1 capital ratios than seven of the largest U.S. banks. Tier 1 capital can be easily liquidated to help a bank absorb losses in a financial crisis, and is considered a key measure of financial strength.
Though Mr. Mendonca points out that Canada’s largest banks are expected to meet new global capital standards being implemented in 2013, the findings throw some cold water on the widely held belief that they’re swimming in excess capital.
Canadian banks have enjoyed a reputation over the past few years of being far better-capitalized than their global peers, due mostly to conservative rules that require them to hold more capital than global standards dictate. That reputation was further bolstered amid the global financial crisis as major Canadian banks emerged unscathed from the meltdown that damaged many U.S. and European lenders.
However, Mr. Mendonca points out several large U.S. banks took steps during the crisis to bolster their capital and appear to have caught up, once the new Basel III banking standards are applied. On average, the Tier 1 capital levels of the big Canadian banks are tracking 160 basis points behind seven large U.S. banks that recently disclosed their pro-forma Tier 1 capital ratios in quarterly earnings. (A basis point is 1/100th of a percentage point.)
“Reflecting just how well Canada’s banks weathered the crisis as well as all the back-slapping among regulators and politicians, we have consistently expressed the view that Canada’s banks will have little or no difficulty reaching the required minimum capital ratios according to the schedule laid out by Basel III,” Mr. Mendonca said.
However, Canada’s banks, “are not in fact better capitalized than their U.S. peers” when the new rules are taken into consideration.
Mr. Mendonca looked at the Tier 1 capital projections made recently by seven U.S. banks in their quarterly earnings, including JPMorgan, PNC Financial Services Group Inc., SunTrust Banks Inc., Wells Fargo Corp., BB&T Corp. and Regions Financial Corp.
Two of the largest U.S. banks – Citigroup Inc. and Bank of America Corp. – were not included because their recent quarterly earnings did not come with Tier 1 capital projections under the new rules.
The report comes as Canada’s banking regulator is expected to issue its plan for “capital adequacy” on Tuesday. The guidelines will be released by the Office of the Superintendent of Financial Institutions Canada and will spell out what targets must be met in Canada, and by when.
Under the Basel III process, banks around the world will have to raise their Tier 1 capital levels to 7 per cent by 2019. That ratio must be at 3.5 per cent by 2013.
Though Mr. Mendonca said he doesn’t expect any of the Canadian banks will have trouble meeting either global standard, the general expectation in the market is that Canadian banks will achieve the 7-per-cent ratio by 2013, ahead of the rest of the world’s banks.
He said National Bank of Canada, Bank of Montreal and Canadian Imperial Bank of Commerce could be sitting on “significant excess capital,” while Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia will have a harder time pushing significantly above the 7-per-cent threshold by the end of 2012.
“Reaching a 7-per-cent common equity Tier 1 ratio by 2012 is not as easy as we originally thought,” Mr. Mendonca said.
However, the analyst said it appears the market is not distinguishing between the two scenarios.
“Either the market is not fully aware of the major differences in capital strength on a Basel III basis, or investors simply do not care as long as the banks can get to 7 per cent by the end of 2012,” without raising more capital, the research note said.
댓글 없음:
댓글 쓰기