NEW YORK ( TheStreet) -- With the economy's recovery uncertain and many large banks still unable to gauge their ultimate risk from mortgage putback lawsuits, TheStreet has identified the U.S. bank holding companies with the strongest capital ratios.
The list was compiled using second-quarter data from Securities and Exchange Commission filings provided by SNL Financial. In order to keep the data uniform, thrift holding companies were excluded.
The group includes the 10 bank holding companies with total assets exceeding $25 billion, with the highest Tier 1 common risk-based capital ratios as of June 30.
Tier 1 capital is one of the most conservative measures of a bank's capital strength, and excludes some intangible assets, including certain deferred tax assets, goodwill, and mortgage servicing rights. Tier 1 capital also excludes some preferred equity, including the recent $5 billion investment in Bank of America (BAC) by Warren Buffett's Berkshire Hathaway (BRK.B), since the 6% dividend on Buffett's preferred shares is cumulative.Tier 1 Common is even more conservative, since it excludes all preferred equity. This shows just how desperate Bank of America was for Buffett's money, since the Berkshire preferred shares won't help the nation's largest bank achieve the higher capital ratios required under the enhanced Basel III standards. JPM Securities analyst on Friday reiterated his neutral rating for Bank of America, but said that "if the cumulative destruction of the current pro-forma equity buffer were significant enough (i.e., $37 billion per our analysis), the company would be at minimum capital levels and thereafter need to execute a dilutive common raise." For the group of banking holding companies we selected, we have also included the total risk-based capital ratios, which include preferred (and cumulative preferred) equity, most loan loss reserves, some unrealized losses on securities gains, and some subordinated debt. With the entire banking sector being hammered this year, some of the 10 strongly-capitalized large banks identified here are priced very cheaply to consensus forward earnings estimates, reflecting investors' suspicions about the entire sector, and the prospects for a double-dip recession. Then again, banks have been consistently beating analysts' quarterly earnings estimates over the past year. Four of large, strongly capitalized bank holding companies are priced below tangible book value, according to SNL Financial. Here they are, in ascending order by Tier 1 capital
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV