{"id":5772,"date":"2009-03-05T16:52:52","date_gmt":"2009-03-05T20:52:52","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=5772"},"modified":"2009-03-05T16:52:52","modified_gmt":"2009-03-05T20:52:52","slug":"bns-capitalization-1q09","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=5772","title":{"rendered":"BNS Capitalization: 1Q09"},"content":{"rendered":"

BNS has released<\/a> its 1Q09 Report to Shareholders<\/a> and Supplementary Package<\/a>, so it’s time to recalculate how much room they have to issue new preferred shares – assuming they want to!<\/p>\n

Step One is to analyze their Tier 1 Capital, reproducing the prior format<\/a>:<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n\n
BNS Capital Structure
\nOctober, 2008
\n& January 2009<\/td>\n<\/tr>\n
 <\/td>\n4Q08<\/td>\n1Q09<\/td>\n<\/tr>\n
Total Tier 1 Capital<\/td>\n23,263<\/td>\n22,839<\/td>\n<\/tr>\n
Common Shareholders’ Equity<\/td>\n86.8%<\/td>\n90.8%<\/td>\n<\/tr>\n
Preferred Shares<\/td>\n12.3%<\/td>\n16.2%<\/td>\n<\/tr>\n
Innovative Tier 1 Capital Instruments<\/td>\n11.8%<\/td>\n12.0%<\/td>\n<\/tr>\n
Non-Controlling Interests in Subsidiaries<\/td>\n2.2%<\/td>\n2.4%<\/td>\n<\/tr>\n
Goodwill<\/td>\n-9.8%<\/td>\n-12.3%<\/td>\n<\/tr>\n
Miscellaneous<\/td>\n-3.3%<\/td>\n-9.1%<\/td>\n<\/tr>\n
‘Common Equity’ includes ‘Accumulated Foreign Currency Translation Losses’ and ‘Unrealized losses on AFS Equities’.<\/i><\/td>\n<\/tr>\n
‘Misc’ is ‘Other Capital Deductions’<\/i><\/td>\n<\/tr>\n<\/table>\n<\/div>\n

Next, the issuance capacity (from Part 3 of the introductory series<\/a>):<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n
BNS
\nTier 1 Issuance Capacity
\nOctober 2008
\n& January 2009<\/td>\n<\/tr>\n
 <\/td>\n4Q08<\/td>\n1Q09<\/td>\n<\/tr>\n
Equity Capital<\/td>\n(A)<\/td>\n17,653<\/td>\n16,379<\/td>\n<\/tr>\n
Non-Equity Tier 1 Limit<\/td>\nB=0.666*A<\/td>\n11,757<\/td>\n10,908<\/td>\n<\/tr>\n
Innovative Tier 1 Capital<\/td>\n(C)<\/td>\n2,750<\/td>\n2,750<\/td>\n<\/tr>\n
Preferred Limit<\/td>\n(D=B-C)<\/td>\n9,007<\/td>\n8,158<\/td>\n<\/tr>\n
Preferred Actual<\/td>\n(E)<\/td>\n2,860<\/td>\n3,710<\/td>\n<\/tr>\n
New Issuance Capacity<\/td>\n(F=D-E)<\/td>\n6,147<\/td>\n4,448<\/td>\n<\/tr>\n
Items A, C & E are taken from the table
\n“Regulatory Capital”
\nof the supplementary information;
\nNote that Item A includes Goodwill, FX losses, “Other Capital Deductions” and ‘non-controlling interest’ and ‘Other Deduction’; it is equal to Net Tier 1 Capital less preferred shares and Innovative Capital Instruments<\/em>

\nItem B is as per OSFI Guidelines; the limit was recently increased<\/a>.
Items D & F are my calculations<\/em><\/td>\n<\/tr>\n<\/table>\n<\/div>\n

It is noteworthy that the increases in Goodwill (about $550-million) and Other Capital Deductions (about $1,500-million) have been met largely through the issuance of Preferred Shares. Scotia’s note on Other Capital Deductions states:<\/p>\n

Comprised of net after-tax gains on sale of securitized assets, and 50% of all investments in certain specified corporations, and other items.<\/p><\/blockquote>\n

TD was also affected by the rule change<\/a>, which requires a 50\/50 deduction from Tier 1 and Tier 2 instead of the old 0\/100 split. Additionally, Scotia’s purchase of CI Investments closed and this will have affected Goodwill as well.<\/p>\n

and the all important Risk-Weighted Asset Ratios!<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n
BNS
\nRisk-Weighted Asset Ratios
\nOctober 2008
\n& January 2009<\/td>\n<\/tr>\n
 <\/td>\nNote<\/td>\n4Q08<\/td>\n1Q09<\/td>\n<\/tr>\n
Equity Capital<\/td>\nA<\/td>\n17,653<\/td>\n16,379<\/td>\n<\/tr>\n
Risk-Weighted Assets<\/td>\nB<\/td>\n250,600<\/td>\n239,700<\/td>\n<\/tr>\n
Equity\/RWA<\/td>\nC=A\/B<\/td>\n7.04%<\/td>\n6.83%<\/td>\n<\/tr>\n
Tier 1 Ratio<\/td>\nD<\/td>\n9.3% <\/td>\n9.5%<\/td>\n<\/tr>\n
Capital Ratio<\/td>\nE<\/td>\n11.1%<\/td>\n11.4%<\/td>\n<\/tr>\n
Assets to Capital Multiple<\/td>\nF<\/td>\n18.23x<\/td>\n18.62x<\/td>\n<\/tr>\n
A is taken from the table “Issuance Capacity”, above
\nB, D & E are taken from BNS’s Supplementary Report
\nC is my calculation.
\nF is my estimate from the 4Q08 review (OSFI has not yet seen fit to publish the numbers) and BNS’s Supplementary Report (1Q09) of total assets ($509.8-billion) divided by total capital ($27.378-billion)<\/em> (see below)<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

Scotia reports a “Tangible Common Equity” Ratio of 7.8%; I suspect that this is the same as my “Equity \/ RWA” ratio without accounting for the Miscellaneous Deductions. As I stated when reviewing TD, I am comfortable with my figure; in times of stress the bank might find it difficult to remove or realize capital from non-consolidated subsidiaries.<\/p>\n

The bank does not disclose its 1Q09 Assets-to-Capital multiple, stating only:<\/p>\n

OSFI has also prescribed an asset-tocapital leverage multiple; the Bank was in compliance with this threshold as at January 31, 2009.<\/p><\/blockquote>\n

Scotia as $43,526-million exposure to derivatives on the balance sheet; but notes on page 30 of the supplementary report that the effect of Master Netting Agreements and Collateral is to reduce this to $16,757-million – an entirely manageable amount.<\/p>\n","protected":false},"excerpt":{"rendered":"

BNS has released its 1Q09 Report to Shareholders 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 …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25],"tags":[],"class_list":["post-5772","post","type-post","status-publish","format-standard","hentry","category-regulatory-capital"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/5772","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5772"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/5772\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5772"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5772"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5772"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}