Bank Ratings Incorporate Expectations For ... - Standard & Poor's

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Table 2 Estimated Capital Ratios For 100 Of The Largest Banks (cont.) U.S. PNC Financial Services Group¶ A Stable 8.2 Adequate Strong 1 U.S. Regions Financial Corp.¶ BBB- Stable 7.5 Moderate Moderate (2) U.S. State Street Corp.¶ AA- Negative 6.3 Adequate Strong 1 U.S. SunTrust Banks Inc.¶ BBB+ Stable 8.1 Adequate Moderate (1) U.S. The Goldman Sachs Group Inc.¶ A Negative 7.2 Adequate Moderate (1) U.S. U.S. Bancorp ¶ A+ Stable 8.2 Adequate Strong 1 U.S. UnionBanCal Corp.¶ A+ Stable 9.6 Strong Strong 2 U.S. Wells Fargo & Co.¶ AA- Negative 7.8 Adequate Strong 1 ¶The rating and outlook are those on the main operating company. *Estimated RAC before diversification as of June 2011. §Pro forma RAC before diversification as of March 2011. †Pro forma RAC before diversification as of December 2010. ‡Pro forma RAC before diversification as of June 2011. **RBS' ratios exclude the effect of the Asset Protection Scheme. §§NBG successfully completed the issuance of €1 billion in preference shares subscribed by the Greek government, which we believe would likely enhance the bank’s RAC ratio by about 50 basis points. Additional public funds have also been set apart to recapitalize Greek banks if needed. Nevertheless, we believe that the magnitude of NBG's exposure to government debt, relative to its capital base, means that a potential government debt restructuring could substantially impair the bank's capital position. ††Not adjusted for the US$2 billion hybrid issue and sale of its stake in Bank Sarasin, both announced in November 2011, and Standard & Poor's inclusion of the Member Certificates in ACE in December 2011, which together would increase the RAC ratio by 50 basis points-80 basis points. ‡‡We computed the pro forma RAC ratio (before diversification) as of year-end 2010 by combining public or confidential information provided on regulatory Pillar 3 data of the sectors key member: Local cooperative banks, DZ Bank Group, Deutsche Apotheker- und Aerztebank eG, and WGZ Bank. Cross holdings and interbank placements within the group have been retreated according to our best efforts to compute an estimate for the consolidated entity. (1)We computed our estimated RAC ratio as of end-year 2010 by combining public or confidential information provided on regulatory Pillar 3 data of the group's key members: Savings banks in the States of Hesse and Thuringia, and Landesbank Hessen-Thueringen Girozentrale. Cross holdings and interbank placements within the group have been retreated according to our best efforts to compute an estimate for the consolidated entity. (2)VTB's RAC ratio dropped from 6.9% at year-end 2010 to an estimated 3.8% on Sept. 30, 2011, because of VTB’s third-quarter 2011 purchase of Bank of Moscow (BOM) under fair value accounting. VTB purchased the BOM loans net of reserves, at 50% of prior book value. We believe that the acquisition at a deep discount limits the downside risk for VTB of further losses on the BOM portfolio. We did not adjust VTB's pro forma RAC ratio as of Sept. 30, 2011 for this. (3)For the estimated RAC before diversification as of September 2011, the numerator is TAC as of December 2010, because the bank does not disclose interim financial statements. The growth rate of the holding company's regulatory risk-weighted assets (September 2011 versus December 2010) is incorporated in our estimate of the denominator. Related Research • U.S. Banks: Estimated Basel III Capital Shortfalls Could Limit Bank Lending, Dec. 7, 2011 • Banks: Rating Methodology And Assumptions, Nov. 9, 2011 • Most Asia-Pacific Banks Are In Better Shape Than Their Global Peers For Basel III, But Some May Need To Toughen Up Against New Rules, Oct. 20, 2011 • Standard & Poor's Risk-Adjusted Capital Framework Provides Insight Into Basel III, June 9, 2011 • U.S. Trust Banks' Off-Balance-Sheet Exposures Are Addressed In The Risk-Adjusted Capital Framework, March 4, 2011 • U.S. Banks' Risk-Adjusted Capital Has Improved, But Remains Neutral To Negative For Ratings, Jan. 18, 2011 • Despite Significant Progress, Capital Is Still A Rating Weakness For Large Global Banks, Jan. 18, 2011 • Basel's Global Quantitative Impact Study Exposes Large Banks' Regulatory Capital Shortfall, Dec. 20, 2010 • Bank Capital Methodology And Assumptions, Dec. 6, 2010 Appendix: Assumptions Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally Historical risk-adjusted capital ratios To provide transparency on the figures underlying the roll-out of our criteria in November and December 2011, we set the sovereign ratings, BICRAs, and economic risk scores as of Nov. 30, 2011, to compute the pro forma RAC Standard & Poors | RatingsDirect on the Global Credit Portal | February 29, 2012 12 948538 | 300076937
atios (see table 3). In other words, we used the set of parameters that were in effect when we first published the ratings under the new bank criteria. Contrary to the set of parameters used for the September 2011 RAC estimates, this set of parameters does not factor in the eurozone sovereign downgrades that took place in January 2012. We started by computing pro forma historical RAC ratios based on full disclosure (such as Pillar 3 reports for banks in Basel II jurisdictions) at the date for which such data are available. This is December 2010 for the majority of banks. The historical RAC ratios are pro forma in the sense that we adjusted the numerator of the ratio, TAC, in line with the new hybrid criteria (published in November 2011). The RACF embeds explicit adjustments for concentration and diversification of credit, market, operational, and insurance risks. The adjustment aims to capture four components: single-name concentrations in the corporate portfolio, industry/sector concentration or diversification of the corporate portfolio, geographic concentration or diversification of credit risk and equity risk-weighted assets, and concentration or diversification of business lines and risk types. The large banks in this sample benefit, on average, from the concentration and diversification adjustments. However, the capital and earnings assessment does not incorporate adjustments for diversification, rather they contribute to our assessment of risk position. Table 3 Historical RAC Ratios Pro Forma For New Hybrid Criteria And BICRA Scores Country Entity name Australia Australia and New Zealand Banking Group Ltd. Australia Commonwealth Bank of Australia Data as of date March 31, 2011 June 30, 2011 Australia Macquarie Group Ltd. March 31, 2011 Australia National Australia Bank Ltd. March 31, 2011 Australia Westpac Banking Corp. March 31, 2011 Austria Erste Group Bank AG Dec. 31, 2010 Austria Raiffeisen Banking Group Austria Dec. 31, 2010 Belgium KBC Group N.V. Dec. 31, 2010 Brazil Banco Bradesco S.A. Dec. 31, 2010 Brazil Banco do Brasil S.A Dec. 31, 2010 Bank Ratings Incorporate Expectations For Improving Capital Assessments Globally RAC ratio before diversification (%) RAC ratio after diversification (%) Currency 8.2 9.7 Australian dollar 7.5 8.5 Australian dollar 8.9 9.6 Australian dollar 7.0 8.6 Australian dollar 7.8 9.0 Australian dollar Total adjusted capital RAC RWA before diversification RAC RWA after diversification 31,275 383,446 323,202 29,176 391,136 345,003 10,630 119,531 110,183 29,273 416,395 339,073 29,057 370,325 324,059 5.9 6.5 Euro 10,865 183,702 166,682 5.2 5.9 Euro 13,129 254,500 222,435 4.7 5.9 Euro 10,362 218,745 175,188 6.3 7.5 Brazilian rial 6.5 7.6 Brazilian rial 45,577 719,751 606,280 42,933 659,600 563,936 www.standardandpoors.com/ratingsdirect 13 948538 | 300076937
Page 1 and 2: Financial Institutions Research Ban
Page 3 and 4: Our Revised Criteria Clarify The Im
Page 5 and 6: Chart 2 The RAC Ratios Vary Highly
Page 7 and 8: On Dec. 8, 2011, the EBA published
Page 9 and 10: computes under the hybrid criteria.
Page 11: Table 2 Estimated Capital Ratios Fo
Page 15 and 16: Table 3 Historical RAC Ratios Pro F

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