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TCE - stress test, solvency, calculation

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April 21, 2009 – Comments (5)

Found out several interesting things about Tangible Common Equity Ratio (TCE) today.

*the so-called stress tests that banks are undergoing by the Treasury and the Fed are focused on the TCE. Hmm…interesting

*turns out that the OCC (Office of the Comptroller of the Currency) uses TCE to determine if a bank is insolvent and requires seizure by the FDIC. Did not know that.

*here is how you calculate it:

TCE ratio = (net capital) / (total assets)

So: = (capital - debt) / (total assets)

Course, “capital” can have several definitions, depending on which ratio you are trying to calculate. Usually,

Capital = common stock + preferred stock + deferred taxes

But for TCE, you only get to count common stock. So:

TCE ratio = (common stock - debt) /  (total assets)

5 Comments – Post Your Own

#1) On April 21, 2009 at 8:28 PM, TekLantern (98.16) wrote:

Hello! Thanks for the info! Got any examples? Can you tell me if this is correct for BAC? (using numbers from yahoo finance) 

http://finance.yahoo.com/q/bs?s=BAC&annual

 Capital (Stock) =  76,766,000 = 0.076B

 Debt (Total Liabilities) =  1,640,891,000 = 1.64B

 Total Assets = 1,817,943,000 = 1.82B

TCE ratio =  (common stock - debt) /  (total assets)

TCE ratio =  (0.076 - 1.64) /  (1.82) = -0.86

 Pretty sure something is wrong... 

 

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#2) On April 23, 2009 at 9:36 PM, jerryguru69 (94.84) wrote:

Sorry. Correct formula is:

(total equity - intangibles - preferred equity) / (total assets)

so for BAC: ($B)

(177 - 103 - 38) / (1817)

= 0.0198

= 2.0%

see my post on 4/23

 

 

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#3) On April 23, 2009 at 9:37 PM, jerryguru69 (94.84) wrote:

Sorry. Correct formula is:

(total equity - intangibles - preferred equity) / (total assets)

so for BAC: ($B)

(177 - 103 - 38) / (1817)

= 0.0198

= 2.0%

see my post on 4/23

 

 

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#4) On April 24, 2009 at 12:25 AM, TekLantern (98.16) wrote:

OK, cool. Thanks!

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#5) On April 24, 2009 at 12:31 AM, TekLantern (98.16) wrote:

Where did the 103 come from?

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