NA has released its Third Quarter 2008 Report and Supplementary Package, so it’s time to recalculate how much room they have to issue new preferred shares – assuming they want to!
Step One is to analyze their Tier 1 Capital, reproducing the prior format:
| NA Capital Structure October, 2007 & July, 2008 |
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| 4Q07 | 3Q08 | |
| Total Tier 1 Capital | 4,442 | 5,534 |
| Common Shareholders’ Equity | 95.0% | 84.3% |
| Preferred Shares | 9.0% | 14.0% |
| Innovative Tier 1 Capital Instruments | 11.4% | 15.0% |
| Non-Controlling Interests in Subsidiaries | 0.4% | 0.5% |
| Goodwill | -15.8% | -13.0% |
| Miscellaneous | NA | -0.7% |
| ‘Miscellaneous’ includes ‘short positions of own shares’ and ‘securitization related deductions’ | ||
Next, the issuance capacity (from Part 3 of the introductory series):
| NA Tier 1 Issuance Capacity October 2007 & July 2008 |
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| 4Q07 | 3Q08 | ||
| Equity Capital | (A) | 3,534 | 3,930 |
| Non-Equity Tier 1 Limit | (B=A/3), 4Q07 (B=0.428*A), 2Q08 |
1,178 | 1,682 |
| Innovative Tier 1 Capital | (C) | 508 | 830 |
| Preferred Limit | (D=B-C) | 670 | 852 |
| Preferred Actual | (E) | 400 | 774 |
| New Issuance Capacity | (F=D-E) | 270 | 78 |
| Items A, C & E are taken from the table “Risk Adjusted Capital Ratiosl” of the supplementary information; Note that Item A includes everything except preferred shares and innovative capital instruments Item B is as per OSFI Guidelines; the limit was recently increased. Items D & F are my calculations |
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and the all important Risk-Weighted Asset Ratios!
| NA Risk-Weighted Asset Ratios October 2007 & July 2008 |
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| Note | 2007 | 3Q08 | |
| Equity Capital | A | 3,534 | 3,930 |
| Risk-Weighted Assets | B | 49,336 | 55,557 |
| Equity/RWA | C=A/B | 7.16% | 7.07% |
| Tier 1 Ratio | D | 9.0% | 10.0% |
| Capital Ratio | E | 12.4% | 13.9% |
| Assets to Capital Multiple | F | 18.6x | 15.7x |
| A is taken from the table “Issuance Capacity”, above B, D & E are taken from RY’s Supplementary Report C is my calculation F is taken from the OSFI site for 4Q07. The 2Q08 figure is approximated by subtracting goodwill of 707 from total assets of 123,608 to obtain adjusted assets of 122,901 and dividing by 7,353 total capital. The result of 16.7x was in agreement with the figure ultimately reported by OSFI. The 3Q08 figure subtracts goodwill of 722 from total assets of 121,931 [Page 1 of Sup] to obtain adjusted assets of 121,209 and dividing by 7,730 total capital. |
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National Bank does not disclose its Assets-to-Capital Multiple. Their Report to Shareholders simply states (Note 4):
In addition to regulatory capital ratios, banks are expected to meet an assets-to-capital multiple test. The assets-to-capital multiple is calculated by dividing a bank’s total assets, including specified off-balance sheet items, by its total capital. Under this test, total assets should not be greater than 23 times the total capital. The Bank met the assets-to-capital multiple test in the third quarter of 2008.
Well … at least they’re delevering! It is also interesting to note that they have – basically – maxed out on their expanded allowance of non-equity Tier 1 Capital.