National Bank has released its Fourth Quarter, 2007, Report and Supplementary Information; I will analyze this in the same format as was has been recently done for BMO and TD.
Step One is to analyze their Tier 1 Capital, reproducing the summary produced last year (although NA was not included in last year’s round-up):
| NA Capital Structure October, 2007 & October 2006 |
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| 2007 | 2006 | |
| Total Tier 1 Capital | 4,442 | 4,674 |
| Common Shareholders’ Equity | 95.0% | 93.8% |
| Preferred Shares | 9.0% | 8.6% |
| Innovative Tier 1 Capital Instruments | 11.4% | 12.0% |
| Non-Controlling Interests in Subsidiaries | 0.4% | 0.2% |
| Goodwill | -15.8% | -14.6% |
Next, the issuance capacity (from Part 3 of last year’s series):
| NA Tier 1 Issuance Capacity October 2007 & October 2006 |
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| 2007 | 2006 | ||
| Equity Capital | (A) | 3,534 | 3,712 |
| Non-Equity Tier 1 Limit | (B=A/3) | 1,178 | 1,237 |
| Innovative Tier 1 Capital | (C) | 508 | 562 |
| Preferred Limit | (D=B-C) | 670 | 675 |
| Preferred Y/E Actual | (E) | 400 | 400 |
| Post Y/E Issuance | (F) | 0 | 0 |
| New Issuance Capacity | (G=D-E-F) | 270 | 275 |
| Items A, C & E are taken from the table “Risk-Adjusted Capital Ratios” of the supplementary information; Note that Item A includes Goodwill, non-controlling interest and trading positions (SEE UPDATE, BELOW) Item B is as per OSFI Guidelines Items D, F & G are my calculations |
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We can now show the all important Risk-Weighted Asset Ratios!
| NA Risk-Weighted Asset Ratios October 2007 & October 2007 |
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| Note | 2007 | 2006 | |
| Equity Capital | A | 3,534 | 3,712 |
| Risk-Weighted Assets | B | 49,336 | 47,298 |
| Equity/RWA | C=A/B | 7.16% | 7.85% |
| Tier 1 Ratio | D | 9.0% | 9.9% |
| Capital Ratio | E | 12.4% | 14.0% |
| A is taken from the table “Issuance Capacity”, above B, D & E are taken from the Supplementary Report C is my calculation. |
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Note that, as with BMO and TD, the Equity/RWA ratio and Tier 1 Ratio have both deteriorated over the year, but for NA the Total Capital Ratio has also declined. Subordinated Debt outstanding has declined over the past year.
It is disappointing to see the deterioration in the Equity/RWA ratio over the year – I consider this to be a measure of the safety of the preferred shares, as it is the “total risk” of the bank’s assets (as defined by the regulators) divided by the value of capital junior to preferreds (which therefore takes the first loss). It is by no means anything to lose a lot of sleep over, as it still remains strong – the preferreds are better protected than the sub-debt of a lot of global banks – but … geez, the direction’s wrong!
I won’t discuss the annual results to any great extent – there will be innumerable reports over the next few months released by analysts with a great deal more time to spend on the matter than I have.
Update: An Assiduous Reader pointed out, with great charm and delicacy, that I am a bonehead. My initial attempt to calculate “Equity Capital” in the “Issuance Capacity” table was incorrect, as I did not include non-controlling interest in my first go-round. This adjustment has now been made. The source data are in the table “Risk-Adjusted Capital Ratios”, page 16 of the Supplementary.
| NA Equity Capital Calculation 2006 |
|
| Source Description | Source Value |
| Common Shareholders’ Equity | 4,388 |
| Non-Controlling Interest | 9 |
| Less: Goodwill | 683 |
| Less: Trading in short positions of own shares (gross) | 2 |
| PrefBlog Calculated Total | 3,712 |
and
| NA Equity Capital Calculation 2007 |
|
| Source Description | Source Value |
| Common Shareholders’ Equity | 4,220 |
| Non-Controlling Interest | 18 |
| Less: Goodwill | 703 |
| Less: Trading in short positions of own shares (gross) | 1 |
| PrefBlog Calculated Total | 3,534 |
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