{"id":79455,"date":"2015-10-12T11:15:32","date_gmt":"2015-10-12T15:15:32","guid":{"rendered":"http:\/\/countingpips.com\/?p=79455"},"modified":"2015-10-12T09:58:20","modified_gmt":"2015-10-12T13:58:20","slug":"u-s-banking-system-the-envy-of-the-world","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/10\/u-s-banking-system-the-envy-of-the-world\/","title":{"rendered":"U.S. Banking System the Envy of the World"},"content":{"rendered":"
October 12, 2015<\/div>
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By WallStreetDaily.com<\/u><\/a> \"U.S.<\/p>\n

By Alan Gula<\/a>, Chief Income Analyst <\/em><\/p>\n

Last week, Deutsche Bank AG<\/strong> (DB<\/a>) announced that it expects an enormous third-quarter loss of EUR6.2 billion ($7 billion). Deutsche may also have to cancel its dividend, which has been paid since the German bank was formed from three regional banks in 1957.<\/p>\n

Meanwhile, Credit Suisse Group AG<\/strong> (CS<\/a>) \u2013 another large European bank \u2013 indicated that it\u2019s planning a huge capital raise. In other words, the equity holders will be diluted.<\/p>\n

These moves raise questions about the health of the European banking system and what may be going on behind the scenes.<\/p>\n

And with the financial crisis still fresh in our memories, it\u2019s only natural to wonder whether our own banking system here in the United States can be trusted.<\/p>

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To get to the bottom of things, I\u2019ve ranked some of the largest global banks<\/a> based on their tangible common equity (TCE) ratios in the following table.<\/p>\n

\"Selected<\/p>\n

The TCE ratio can be used to gauge leverage and estimate the magnitude of losses a bank can withstand during a meltdown scenario before shareholder equity is wiped out.<\/p>\n

Here are the top takeaways from this table:<\/p>\n

    \n
  1. U.S. Banks Are in Great Shape<\/strong><\/li>\n<\/ol>\n

    Thankfully, we can rest easy about the U.S. banks.<\/p>\n

    During the financial crisis of 2008-09, the biggest U.S. banks were recapitalized. They\u2019ve worked to reduce leverage and fortify their balance sheets ever since.<\/p>\n

    This is evident with Citigroup Inc.<\/strong> (C<\/a>), Wells Fargo & Co.<\/strong> (WFC<\/a>), Bank of America Corp.<\/strong> (BAC<\/a>), and JPMorgan Chase & Co.<\/strong> (JPM<\/a>) at the very top of the global TCE ratio ranking.<\/p>\n

      \n
    1. European Banks Are Undercapitalized<\/strong><\/li>\n<\/ol>\n

      Unlike the United States, Europe failed to recapitalize its banks during the financial crisis.<\/p>\n

      Given that Deutsche and Credit Suisse both have TCE ratios below 4%, their recent announcements aren\u2019t all that surprising. It\u2019s actually a good thing that some of the weaker banks are preemptively taking measures to shore up their balance sheets before a banking crisis is at the doorstep.<\/p>\n

      As you can see, the French banks \u2013 BNP Paribas<\/strong> SA<\/strong> (BNPQY), Societe Generale<\/strong> Group<\/strong> (SCGLY), and Credit Agricole<\/strong> SA<\/strong> (CRARY) \u2013 are woefully unprepared for an adverse scenario. Mon dieu!<\/em><\/p>\n

        \n
      1. Canadian Banks Look Marginal<\/strong><\/li>\n<\/ol>\n

        The Canadian banks<\/a> aren\u2019t in horrible shape, but they\u2019re still in a precarious position given the weakness in the Canadian economy.<\/p>\n

        Canadians will contend that their banking system is the safest in the world. We shall see.<\/p>\n

          \n
        1. The Next Crisis<\/strong><\/li>\n<\/ol>\n

          The epicenter of the next crisis isn\u2019t going to be the U.S. banking system. This is not just due to large capital buffers, either.<\/p>\n

          For example, as a result of the Volcker Rule, the universal banks (those with both commercial and investment banking arms) aren\u2019t able to take on as much risk.<\/p>\n

          Thus, we don\u2019t have to worry about the safety of our savings accounts or lose sleep about an inability to withdraw money from ATMs.<\/p>\n

            \n
          1. Bank Stocks Not a \u201cBuy\u201d<\/strong><\/li>\n<\/ol>\n

            The U.S. banking system may be safe, but that doesn\u2019t necessarily mean that U.S. bank stocks are great investments.<\/p>\n

            Right now, I much prefer a group of shadow<\/em> banks \u2013 namely the mortgage REITs<\/a>.<\/p>\n

            Safe (and high-yield) investing,<\/p>\n

            Alan Gula, CFA<\/p>\n

            The post U.S. Banking System the Envy of the World<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

             <\/p>\n","protected":false},"excerpt":{"rendered":"

            By WallStreetDaily.com By Alan Gula, Chief Income Analyst Last week, Deutsche Bank AG (DB) announced that it expects an enormous third-quarter loss of EUR6.2 billion ($7 billion). Deutsche may also have to cancel its dividend, which has been paid since the German bank was formed from three regional banks in 1957. Meanwhile, Credit Suisse Group […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-79455","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/79455","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=79455"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/79455\/revisions"}],"predecessor-version":[{"id":79473,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/79455\/revisions\/79473"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=79455"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=79455"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=79455"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}