Bank of America Corp. is likely to have the weakest Tier 1 common equity capital ratio among the four largest U.S. banks as international regulators near agreement on standards to help prevent future financial crises, according to KBW Inc. and Morgan Stanley analysts.
Lower capital ratios could prompt regulators from permitting the Charlotte, North Carolina-based bank to raise its dividend until 2012 or 2013, a year or more later than its biggest rivals, KBW Inc. analyst Frederick Cannon wrote yesterday in a report to clients. JPMorgan Chase & Co., the second-largest U.S. bank, and Wells Fargo & Co., the fourth- largest, are poised to boost dividends next year, he said.
Regulators have proposed stricter capital rules and liquidity requirements to reduce risk-taking. Various nations differ over the changes with Germany arguing higher capital requirements will curb lending at a time when global economic recovery is faltering.
KBW said it based its estimates on expectations that banks will face a required 7 percent Tier 1 common equity ratio, including a 2 percentage point buffer. “Under the required level, banks would want to operate at 8 percent” or greater, according to the report.
Bank of America’s ratio of Tier 1 common equity to assets would decline to 6.3 percent from 8 percent under the rules expected to be adopted by the Basel Committee on Banking Supervision’s main governing body, Cannon and Morgan Stanley analyst Betsy Graseck said in separate reports.
China Construction Bank
The lender won’t be able to include its $16.7 billion holding in China Construction Bank shares under those rules, trimming its ratio by 145 basis points, KBW said.
Bank of America doesn’t comment on analyst reports, spokesman Lawrence Grayson said.
JPMorgan is likely to have an 8.8 percent ratio, while No. 3 Citigroup Inc. will be at 6.5 percent and San Francisco-based Wells Fargo, 7.1 percent, according to KBW. Morgan Stanley’s estimates were 8.9 percent for JPMorgan, 8.6 percent for Citigroup and 7 percent for Wells Fargo.
The Basel committee’s main governing body will meet Sept. 13 to decide what banks worldwide need to hold in common equity equal to a percentage of assets weighted against their risk profiles. The committee this week considered a proposal calling for a minimum Tier 1 capital ratio for financial institutions of 6 percent, as well as an additional buffer of 3 percent for bad times.
Tier 1 includes common equity and some equity-like debt instruments. The ratio measures the amount of capital as a percentage of assets adjusted according to their risk profiles. Under current Basel rules, the Tier 1 requirement is 4 percent. Half of that, or 2 percent, needs to be common stock. There’s no buffer requirement.