Slightly less Pointless

24 November 2009 By George Hay Follow @gfhay

The ratings agency looked too kindly on structured credit dross during the boom. But it is still global and basically impartial. The new S&P analysis of banks capital adequacy could give investors a single worldwide standard and help the agency s battered reputation.

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A new study of capital adequacy by Standard & Poor's suggests the global banking sector is three percentage points less well capitalised than currently presumed.

A study of 45 of the world's leading banks by the ratings agency concluded that global banks have an average riskadjusted capital ratio (RAC) of 6.6 percent, compared to the 9.5 percent average Tier 1 ratio calculated according to Basel II guidelines.

In the study, HSBC had the highest RAC ratio of 9.2 percent.

UBS and Citigroup, which reported Tier 1 ratios of 13.2 percent and 12.7 percent respectively, had RAC ratios of only 2.2 percent and 2.1 percent. The difference was caused by the banks' reliance on hybrid debt, which S&P does not include as capital, and by the date of the June 30 date of the S&P study. After subsequent capital raisings, UBS has a RAC ratio of 7.1 percent and Citigroup has 6 percent.

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