Magazine article American Banker

Big Banks Strengthened Ratios in 1st Half

Magazine article American Banker

Big Banks Strengthened Ratios in 1st Half

Article excerpt

Big Banks Strengthened Ratios in 1st Half

Major U.S. banks, in aggregate, boosted their capital ratio in the first half of 1991 as they added more equity than loans to their balance sheets, according to a report by Salomon Brothers Inc.

For 11 money-center banks, Tier 1 capital - largely equity - rose to 6.25% of risk-weighted assets on June 30 from 5.66% at yearend 1990, Salomon said.

Same Story at Regionals

Parallel increases occurred at 18 superregional companies, to 7.38% from 6.72%, and at 21 regionals, to 8.86% from 8.34%.

The improvement of more than 50 basis points in each group indicates that bankers are heeding regulators' and investors' calls for more capital. But the increases had more to do with a renewed capital-raising ability than with profitability, which has been anemic.

For the 50 banks in the Salomon study, taken together, Tier 1 capital rose to 7.5% of risk-weighted assets from 6.91%.

Only three of the 50 companies had declines: AmSouth Bancorp. by 68 basis points to 7.97%; Bank of Boston Corp. by 40 basis points to 4.80%; and NCNB Corp. by 17 basis points to 6.69%. Banks must maintain at least 4% by the end of 1992.

Republic New York Corp. and State Street Boston Corp. registered the highest ratios, 13.66% and 13.10%, respectively. Each was up almost two percentage points since yearend.

The trend to higher capital ratios underscores the lack of asset growth at major banks. And it masks the fact that banks are generating new capital by tapping the public markets rather than by retaining earnings.

"People have gotten the message that capital is good," said David Berry, an analyst at Keefe, Bruyette & Woods Inc.

A flurry of preferred stock issues was a major factor in the increase in ratios.

Banks issued $1 billion in straight preferred stock, $950 million in convertible preferred, and $2. …

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