Bank of America [1] is falling behind—at least in terms of its capital ratio. According to Forbes [2], the bank has a common equity tier 1 (CET1) buffer of just 100 basis points, or 1 percent, at the close of Q1 2017. The bank’s target CET1 ratio is 10 percent; it came in slightly above that at 11 percent.
The remainder of the country’s biggest banks far exceeded their Q1 goals. Morgan Stanley—the best-capitalized bank in the country—had a CET1 figure of 16.6 percent at the close of Q1 2017. Its target? Just 10 percent—equating to a 660 basis point buffer.
Goldman Sachs came in at No. 2 for the biggest capital buffer with a 300 basis point differential, while Citigroup took the No. 3 spot with a 250 point buffer. Rounding out the top five were Wells Fargo (220 basis point difference) and JPMorgan Chase (190 basis point difference).
The CET1 buffers are used by the Federal Reserve to either approve or reject a bank’s capital plans as a part of its annual stress testing. The bigger the buffer, the more wiggle room a bank has to entice investors.
According to Forbes, “A larger difference between the current and target CET1 ratios gives a bank more leeway in handing out cash to investors in the form of share repurchases and dividend hikes. With the Fed slated to release the results of the current cycle of its annual stress tests next month, the sizeable capital buffers created by all banks should help most, if not all, of them announce an increase in their capital return plans.”
Though Bank of America does lag behind on its CET1, all the country’s major banks exceeded their targets in Q1, largely due to “a jump in investment banking profits,” according to Forbes.
In April, Bank of America reported a 40-percent jump [3] in its net revenue. The bank credited the increase to expanding consumer loans and gains in both interest and noninterest income. BofA’s earnings per share increased by nearly 50 percent in the first quarter. The bank saw overall revenues rise 7 percent, to $22.2 billion.