Standard & Poor’s Risk Capital Study Finds Citigroup (NYSE: C) And UBS (NYSE: UBS) Lacking

Standard & Poor’s releases a report on Monday that detailed a capital ratio study of the world’s largest banks.  The report showed a wide variance in the risk adjusted capital ratio (RAC) and regulatory ratios, such as Tier 1 capital.

According to the report, banks on average had a 6.7 percent RAC ratio, which is about 3 percent below the average tier 1 capital ratio.  Citigroup (NYSE: C) and UBS (NYSE: UBS) were found as having very weak RAC ratios.

Citigroup posted a RAC ratio of 2.1 percent, while UBS came in at 2.2 percent, according to the study.

Bank of America (NYSE: BAC) had a below average RAC ratio of 5.8 percent, while Wells Fargo (NYSE: WFC) fell just short of the average at 6.4 percent

“The RAC results illustrate our qualitative opinion that Tier 1 and leverage ratios are not sufficient to come up with an informed view about individual banks’ capital adequacy,” said Standard & Poor’s credit analyst Bernard de Longevialle. “We see an important difference between the relative ranking of individual banks’ capital adequacy according to our measure, and what is suggested by Tier 1 ratios.”

Tier 1 capital ratios bottomed out in late 2007, but based on the study’s sample group have since increased by 2.5 percent as of June 30, 2009, with an accelerated pace since year-end 2008.

On the opposite end of the spectrum, HSBC (NYSE: HBC) and Goldman Sachs (NYSE: GS) proved to be in the best condition, with risk adjusted capital ratios of 9.2 percent and 8.3 percent, respectively. 

Morgan Stanley also proved strong with a RAC ratio of 8.1 percent, ranking the bank in the top third of the study.

Standard & Poor’s said they plan to apply the RAC framework from the study to all rated banking groups worldwide by year-end 2010.

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