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davepamn

M$1.00 Funded By Mahalo ? | March 10, 2009 02:58 PM

How much tangible common equity is enough?

Right now banks do not have enough TCE and only massive investment from private and public source will fill the hole. The TCE ratio is the amount of TCE dived by amount of tangible assets. TCE is different from common equity because TCE is reduce by the amount of intangible assets (goodwill, tax benefits, assets that don’t produce income and don’t have a cash equivalent) owned by the bank. Some of the experts are saying TCE ratio of 4% or 5% is good enough.

Bank may need a higher TCE ratio today because of off balance sheet liabilities (shadow accounts) and credit default swaps.

http://seekingalpha.com/article/124180-tangible-common-equity-how-much-is-enough

What is the desired TCE ratio for both of these banks?

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sunpat

March 19, 2009 11:34 PM

It’s a lot more than the banks currently have and probably more than in 1995. Banks need more TCE today because they are riskier companies now than they were 13 years ago

Company 1995 2008

Bank of America Corporation 6.1 3.1

Bank of New York Mellon Corporation 8.3 1.6

BB&T Corporation 8.1 4.8

Citigroup Inc. 6.3 1.8

JPMorgan Chase & Co. 5.4 3.9

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davepamn

March 20, 2009 02:52 PM

TCE are dropping at the same time risk of default has increased. How determines the safe TCE ratio?

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