NA has released its First Quarter 2009 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, 2008 & January 2009 |
||
| 4Q08 | 1Q09 | |
| Total Tier 1 Capital | 5,480 | 5,709 |
| Common Shareholders’ Equity | 86.2% | 80.9% |
| Preferred Shares | 14.1% | 19.1% |
| Innovative Tier 1 Capital Instruments | 15.1% | 15.4% |
| Non-Controlling Interests in Subsidiaries | 0.3% | 0.3% |
| Goodwill | -13.5% | -13.0% |
| Miscellaneous | -2.3% | -2.8% |
| Shareholders’ equity includes ‘Foreign Currency Translation Adjustment’ ‘Miscellaneous’ includes ‘unrealized gain of available for sale equity securities’ and ‘securitization related deductions’ |
||
Next, the issuance capacity (from Part 3 of the introductory series):
| NA Tier 1 Issuance Capacity October 2008 & January 2009 |
|||
| 4Q08 | 1Q09 | ||
| Equity Capital | (A) | 3,878 | 3,740 |
| Non-Equity Tier 1 Limit | B=0.666*A | 2,585 | 2,491 |
| Innovative Tier 1 Capital | (C) | 828 | 880 |
| Preferred Limit | (D=B-C) | 1,757 | 1,611 |
| Preferred Actual | (E) | 774 | 1,089 |
| New Issuance Capacity | (F=D-E) | 983 | 522 |
| 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 |
|||
and the all important Risk-Weighted Asset Ratios!
| NA Risk-Weighted Asset Ratios October 2008 & January 2009 |
|||
| Note | 4Q08 | 1Q09 | |
| Equity Capital | A | 3,878 | 3,740 |
| Risk-Weighted Assets | B | 58,069 | 57,312 |
| Equity/RWA | C=A/B | 6.67% | 6.53% |
| Tier 1 Ratio | D | 9.4% | 10.0% |
| Capital Ratio | E | 13.2% | 14.0% |
| Assets to Capital Multiple | F | 16.7x | 17.0x |
| 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 not yet available from OSFI for 4Q08; is not disclosed by the bank on a timely basis; and is not required to be disclosed by OSFI on a timely basis. Pondering the question of which of these three faults is most disgraceful provides me with many happy hours of rumination. The 4Q08 figure is approximated by subtracting goodwill of 740 from total assets of 129,332 to obtain adjusted assets of 128,592 and dividing by 7,679 total capital. The 1Q09 figure is approximated by subtracting goodwill of 741 from total assets of 136,989 to obtain adjusted assets of 136,248 and dividing by 8,034 of total capital |
|||
Prior Reports to Shareholders have included statements such as:
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.
… but they can no longer be bothered to note that they can’t be bothered to disclose this critical figure.
Earnings in the quarter were affected by a charge due to ABCP:
National Bank reported net income of $69 million for the first quarter of fiscal 2009, compared to net income of $255 million in the first quarter of 2008. Diluted earnings per share stood at $0.36, as against diluted earnings per share of $1.58 for the corresponding quarter of 2008. The results for the quarter included charges attributable to the impact of asset backed commercial paper (ABCP). These charges comprise the after-tax cost of holding ABCP of $98 million, which consisted of a net loss on available for sale securities related to ABCP of $129 million, financing costs, professional fees and the cost of economic hedge transactions totalling $10 million and interest income on ABCP further to the restructuring of $41 million. In addition, an after-tax loss related to commitments to extend credit to clients holding ABCP of $86 million was recorded in the first quarter of 2009. In the first quarter of 2008, the Bank had recorded after-tax charges related
to holding ABCP of $14 million, as well as a gain of $32 million on the sale of its subsidiary in Nassau.
Readers will remember that National Bank had an ownership interest in ABCP packagers, and their branded Money Market Fund was a major investor in these assets.