LEX Welcome back. A riskier bank is again a more valuable bank. Bank of America’s shareholders lapped up a dilutive $18.8bn sale of common equity as the price of getting the government off its back. But eager bank investors should also consider what its $45bn repayment of the Treasury’s preferred shares indicates about regulators’ evolving approach to capital – and their control over the bank’s future.
The ratio in focus is clearly tier 1 common. That is somewhat ironic – banks were “saved” by capital injections that left that ratio unaffected. With more than $150bn in cash or equivalents, BofA could have just written a cheque. But the hit of about $9bn to capital would have pushed its tier 1 common ratio from 7.3 per cent to about 6.7 per cent.
