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Has S&P tightened their ratings methodology? The TARP+Equity Risk Capital stacks up quite favorably in comparison with the S&P downgrades.

Today Reuters reported that S&P cuts ratings on 18 US Banks. I will show how the TARP+Equity Risk Capital stacks up in comparison with the S&P downgrades.

Symbol Company TARP / Equity TARP / Assets(%) Equity / Assets(%) TARP+Equity(%) TARP ($millions) Assets ($millions) Equity ($millions)
WFC Wells Fargo 52.12% 4.10% 7.87% 11.98% 25,000 609,074 47,964
CMA Comerica Incorporated 45.26% 3.48% 7.70% 11.18% 2,300 66,003 5,082
C Citigroup 36.66% 2.38% 6.49% 8.87% 50,000 2,100,385 136,405
BAC Bank of America 32.27% 3.06% 9.48% 12.53% 52,500 1,716,875 162,691
FITB Fifth Third Bancorp 31.62% 2.96% 9.35% 12.31% 3,400 114,975 10,754
WL Wilmington Trust Corporation 30.95% 2.72% 8.79% 11.51% 330 12,133 1,066
KEY KeyCorp 28.72% 2.46% 8.57% 11.04% 2,500 101,544 8,706
SNV Synovus Financial Corp. 28.23% 2.83% 10.02% 12.84% 968 34,227 3,429
WTNY Whitney Holding Corp 25.36% 2.72% 10.74% 13.46% 300 11,016 1,183
ASBC Associated Banc-Corp 22.30% 2.35% 10.55% 12.91% 525 22,303 2,354
HBAN Huntington Bancshares 21.94% 2.53% 11.53% 14.06% 1,400 55,334 6,381
WBS Webster Financial 21.14% 2.29% 10.82% 13.11% 400 17,479 1,892
CRBC Citizens Republic Bancorp 19.41% 2.28% 11.74% 14.01% 300 13,170 1,546
SUSQ Susquehanna Bancshares 17.48% 2.22% 12.71% 14.93% 300 13,505 1,716

 

Two points are worth noting. First, with the exception of Citigroup (8.87%) the TARP+Equity of these banks ranged between 11.04% and 14.93%.  Second, the TARP/Equity ratio for downgraded banks is > 17.48%.

In my earlier blog TARP, a Post Event Risk Capital I had suggested that 25% (or 1/4) would be a good benchmark to separate risky banks from ‘safer’ banks. The S&P downgrade suggest that S&P is using a stricter rule that is equivalent 16.7% or 1/6.

This would suggest that we can expect more bank downgrades in 2009.

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Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position.
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