Latest news with #CommonEquityTier1
CNBC
14 hours ago
- Business
- CNBC
As Wall Street awaits the Fed's stress test results, this bank stock may come out on top
The Federal Reserve will release its annual stress test results next Friday — a high-stakes assessment that could cost or save Wall Street's largest banks billions. A solid report card from regulators could pave the way for increased share buybacks, higher dividends, more loan growth and new investments for Club holdings Wells Fargo , Goldman Sachs and Capital One . The Fed subjects U.S. banks with at least $100 billion in assets to the annual year exercise, which simulates severe economic downturns to assess how well firms can withstand financial shocks and how much additional capital each must hold to avoid insolvency. Ahead of 2025's results, Wall Street analysts are striking a hopeful tone and say regulators will lower their stress capital buffers for many of the nation's top banks. Regulators use the stress capital buffer, or SCB, to help determine how big of an emergency fund that each bank needs to keep on hand in case of a financial crisis. These requirements should come down this year because the stress test includes "less onerous scenarios" versus the prior assessment, according to analysts at Jefferies. Compared to 2024, banks will be tested in situations where there's a smaller decline in the country's gross domestic product, a smaller rise in the unemployment rate, and less aggressive declines in asset prices. Deutsche Bank analysts also expect regulators to loosen up. "Recall last year's stress test was really hard with capital requirements rising. … We could see a reversal of most or even all of that this year in our view," the firm wrote in a note this month. "We expect the stress test to be positive for the broader bank group." The stress capital buffer is just one of the components used to calculate each bank's overall Common Equity Tier 1 (CET1) ratio requirement, which is expressed as a percentage and acts as a floor that must be met. Each firm has a baseline CET1 ratio of 4.5%, a measurement of a bank's core capital — largely common stock and retained earnings — versus its risk-weighted assets like loans and other investments. On top of that, they must also hold add another minimum 2.5% for its stress capital buffer, which means every big bank must have an overall CET1 ratio of at least 7%. For the largest banks, known as Global Systemically Important Banks, like Goldman and Wells, an additional capital surcharge is applied between 1% to 4.5%. All of our banks have CET1 ratios much higher than their minimum. This means that Goldman, Wells and Capital One all have adequate amounts of high-quality capital compared to their risk-weighted assets — and, as a result, are in a position to return some of their excess capital to investors. At the end of the first quarter of 2025, Goldman Sachs' CET1 ratio was 14.8% versus the required 13.7%. Wells Fargo's was 11.1%, above its required 9.8%, while Capital One was at 13.6% versus its floor of 10%. WFC YTD mountain Wells Fargo (WFC) year-to-date performance Some Wall Street analysts expect Wells Fargo to be a standout among peers when the 2025 results are released. Deutsche Bank, for example, predicted the bank will be "a winner" from the stress tests, in large part because of what happened with the stress capital buffer component in last year's exam. In 2024, regulators required Wells Fargo to keep more capital in the emergency fund without "obvious reasons for such a large increase in our view," analysts said. Now that the stress test is seemingly easier and Wells' exposure to troubled industries like commercial real estate has improved, it may get more relief from the Fed than peers. "WFC has been working through [commercial real estate and] office exposure and the underlying earnings power of the company has improved," the analysts said. If Wells Fargo does get permission to operate with a smaller capital cushion, that will free up resources for other uses — including, perhaps, returning some of it to shareholders. Even after last year's somewhat surprising stress test results, Wells Fargo was still able to propose a 14% dividend increase. The bank can also lend more if its stress capital buffer is lower, boosting revenues for its consumer banking and lending division. More flexibility in capital can also lead to expansion in other businesses. That includes growing Wells Fargo's budding investment banking division, which we've said is a great opportunity for the bank to further diversify its revenue streams and reduce its reliance on Fed-influenced interest-based income. With less capital tied up, Wells Fargo could offer more or larger bridge loans for the mergers and acquisitions it's helping to close. The firm could also commit more of its balance sheet to bond issuances or underwriting initial public offerings as a result. GS YTD mountain Goldman Sachs (GS) year-to-date performance There's also benefits for Goldman Sachs. Jefferies said big brokers like Goldman are "built better" in 2025 and are "poised for improvement" after the Fed imposed higher capital requirements last year. The analysts cited Goldman's exposure to risk-weighted assets last year, which should "ideally keep the door open for buybacks to at least continue at recent levels and/or accelerate." Goldman authorized $40 billion share buyback program in April. Additional capital allows the firm to grow its wealth management division further to help offset a muted investment banking business. Goldman's wealth management business saw a double-digit revenue increase in fiscal year 2024. COF YTD mountain Capital One (COF) year-to-date performance Finally, there's Capital one. This is the first time the credit card issuer will be subject to the test since completing its acquisition of Discover Financial last month. Capital One now has an even bigger balance sheet following the $35 billion deal, so we're looking forward to seeing what kind of share repurchases management announces after results. "Overall, COF is well capitalized as a combined entity, and has ample flexibility to increase CET1 levels," Jefferies analysts said. In general, there are still some question marks for the future of these tests and their implications for the banking sector. The Fed proposed several changes earlier this year to stress tests requirements following pushback from Wall Street executive after 2024's more stringent rules. New changes could include averaging two year results and giving banks an extra three months to adjust to new capital buffer requirements. These are pending, however, and will not be included in this year's results. There are trade-offs between these new requirements, though, according to Columbia Business School finance professor Yiming Ma. It's a delicate balance of making sure the banks can do their job effectively and protecting the industry from another financial crisis. "If you ask the banks, they will always say the requirements are too harsh. If you ask the regulators, they say we need more requirements," Ma told CNBC Monday. "I think the truth is somewhere in between. You want hard enough requirements that help you prevent the next financial crisis, but you also don't want requirements to be too big to prevent banks from doing their day-to-day business." Regardless of the regulatory uncertainty, our bank names have had a string of good news recently. Wells Fargo had its $1.95 trillion asset cap removed earlier this month after a seven-year long regulatory punishment tied to misdeeds that predated CEO Charlie Scharf's tenure. It's a big catalyst for the financial stock, and a key reason we first started a position in Wells. Meanwhile, Goldman's crucial investment banking division looks to be improving as more companies decide to go public. On Tuesday, for example, Autodoc said that its upcoming public debut will value the online car parts retailer at nearly $3 billion. This follows other big name IPOs like Chime and eToro in recent weeks. Finally, in addition the closing of the Discover deal, Capital One's customers appear to be holding up well despite a murky economic backdrop and questions about the health of consumers. CEO Richard Fairbank said last week that the company's delinquency trends have steadily improved since the fourth quarter of 2024. (Jim Cramer's Charitable Trust is long WFC, GS, COF. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Time of India
3 days ago
- Business
- Time of India
Germany's Pfandbriefbank withdraws guidance as it winds down US business
GDANSK: Deutsche Pfandbriefbank , one of Germany 's top property financiers, said on Wednesday it was withdrawing its full-year guidance amid extraordinary expenses from discontinuing its business in the United States. In the longer term, "the freed-up capital shall be used to accelerate the bank's transformation," the lender said in a statement. PBB said in May that it would not take on new business in the United States as it considered the country too volatile under President Donald Trump. Analysts at AlphaValue said this announcement was not a complete surprise. "Our forecasts are under review with a downgrading tendency at least for 2025," they added in an email to Reuters. Shares were down 12% at 0820 GMT and on track for their biggest fall since March 2020. U.S. and woes Wednesday's decision marks a major strategic shift for PBB. The U.S. is its second biggest market, making up 14% of its loan portfolio. The bank in recent years has bet heavily on the U.S. market by offering commercial real estate loans, which across the industry have succumbed to pressure from high office vacancies and falling property prices following interest rate hikes and a trend towards home-working since the pandemic. In February, PBB forecast new business volume of between 6.5 billion and 7.5 billion euros for the 2025 financial year and said it expected its Common Equity Tier 1 (CET1) ratio to exceed 15.5%. A CET1 ratio is a metric that measures a bank's liquidity to its risk exposure. In a separate statement on Wednesday, PBB said it was in advanced negotiations to acquire a majority stake in a real estate investment manager that it did not name, with the euro price expected to be in the "mid-double-digit millions".
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Business Standard
12-06-2025
- Business
- Business Standard
Canara Bank to raise up to ₹9,500 crore capital through bond issuance
Canara Bank's Board of Directors, at its meeting held on 12 June 2025, approved a capital raising plan for the financial year 2025–26, amounting to up to ₹9,500 crore. The capital will be raised through the issuance of debt instruments, specifically Basel III-compliant Additional Tier I (AT1) and Tier II bonds. The initiative is aimed at strengthening the bank's capital adequacy, supporting future business growth and ensuring compliance with Basel III norms. As part of the plan, the bank will raise up to ₹3,500 crore through AT1 bonds during the financial year, subject to market conditions and necessary approvals. AT1 bonds are unsecured, perpetual debt instruments issued by banks under the Basel III framework. These bonds carry no fixed maturity and offer higher yields, with provisions allowing coupon payment cancellation and principal write-down or conversion into equity if the bank's capital falls below a set threshold. In addition, the bank will raise up to ₹6,000 crore through the issuance of Basel III-compliant Tier II bonds, also subject to market conditions and regulatory approvals. Tier II bonds are debt instruments with a minimum maturity of five years and are used to enhance a bank's total capital. Unlike AT1 bonds, Tier II bonds do not allow interest deferral if the bank remains solvent and profitable. Basel III is a global regulatory framework developed by the Basel Committee on Banking Supervision following the 2008 financial crisis. It mandates that banks maintain a minimum Common Equity Tier 1 (CET1) capital ratio of 4.5 per cent of risk-weighted assets (RWAs), with total Tier 1 capital (CET1 + AT1) at a minimum of 6 per cent and total capital (Tier 1 + Tier 2) at a minimum of 8 per cent.
Yahoo
10-06-2025
- Business
- Yahoo
CBA closes stake sale in Bank of Hangzhou to NCI
Commonwealth Bank of Australia (CBA) has concluded the sale of its remaining shareholding in Bank of Hangzhou (HZB) to New China Life Insurance (NCI), a Beijing-based life insurer. The transaction marks the completion of CBA's divestment from the Chinese bank. In January this year, CBA signed an agreement to sell its remaining 5.45% stake in HZB to NCI, which is said to yield approximately A$940m (then $593m) in gross proceeds for CBA. Established in September 1996, HZB is located in Zhejiang province, China. It is listed on the Shanghai Stock Exchange. NCI is listed on both the Shanghai Stock Exchange and the Hong Kong Stock Exchange. CBA expects the transaction to boost its Common Equity Tier 1 ratio by around 17 basis points. Meanwhile, recently, CBA was in the news for migrating its data platform to Amazon Web Services (AWS) to improve integration with other banking channels. This transition aims to deliver personalised experiences for customers and employees using data, AI, and analytics technologies. The bank has been making several moves in recent times to support its AI push. In March, CBA launched the Seattle Tech Hub in the US to improve its AI capabilities and customer service. The Hub is said to serve as a 'strategic gateway' for CommBank's technology teams. The same month, the bank announced an expanded partnership and investment in AI research company Anthropic, aiming to improve its in-house technology capabilities and support focus on key AI use cases. "CBA closes stake sale in Bank of Hangzhou to NCI" was originally created and published by Retail Banker International, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
09-06-2025
- Business
- Yahoo
Swiss proposal mandates UBS to boost capital by $26bn
The Swiss government has proposed new capital norms, requiring UBS to increase its core capital by $26bn following its acquisition of Credit Suisse. This move aims to enhance financial stability and prevent future banking crises. The proposed regulations would mandate UBS to fully capitalise its foreign subsidiaries, reported Reuters. UBS has been given a timeframe of six to eight years to comply once the legislation is enacted. However, UBS has expressed strong opposition to the capital requirement, labelling it "extreme" and misaligned with international standards. The government indicated that the new capital requirements would allow UBS to reduce its Additional Tier 1 (AT1) bond holdings by $8bn. Currently, UBS is only required to capitalise 60% of its foreign units, with the option to use AT1 debt to meet some of its capital needs. UBS executives have raised concerns that the additional capital requirements could hinder the bank's competitiveness and impact Switzerland's status as a financial hub. The proposal follows the collapse of Credit Suisse in 2023, which prompted Swiss officials, including Finance Minister Karin Keller-Sutter, to advocate for stricter regulations to safeguard taxpayers and the economy. Keller-Sutter, who currently holds Switzerland's rotating presidency, stated that the measures are essential for the stability of the financial sector. The federal council plans to present draft proposals for stakeholder consultations in the latter half of 2025, with parliamentary approval required before the laws can take effect in 2028. However, separate ordinances could be implemented as early as 2027. UBS's Common Equity Tier 1 (CET1) capital ratio may need to rise from 14.3% to as high as 17%, surpassing that of major global competitors. UBS has indicated that it disagrees with the proposed capital increase, which it claims would necessitate holding approximately $24bn in additional CET1 capital. The Swiss government has also proposed reforms to strengthen the market regulator FINMA and improve banks' access to liquidity from the Swiss National Bank. Last month, UBS Group agreed to pay $511m to settle a US investigation into its subsidiary, Credit Suisse Group, for facilitating tax evasion among wealthy Americans. "Swiss proposal mandates UBS to boost capital by $26bn" was originally created and published by Private Banker International, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.
