Citi & UBS Under S&P Eagle Eye (MFG, UBS, C, HBC, GS)

Many, or most, major banks do not have enough capital to comfortably maintain their current ratings.  Standard & Poor’s has a report out saying that the banks are underfunded despite capital raised and despite the recovery we have seen.  Standard & Poor’s introduced a new tracking for capital adequacy and even questions how useful standard market and regulatory measures are.  Citigroup Inc. (NYSE: C) and UBS AG (NYSE: UBS) are two of the trouble spots outlined herein.

In the larger international banks, S&P noted that the average risk-adjusted capital ratios in those banks it reviews was 6.7%.  That is over 3% under average tier one ratios.  S&P believes that the current capital “remains a neutral to negative rating factor for the majority of banks” it covers. S&P now believes that banks need to have a risk-adjusted capital ratio of at least 8%.  S&P has issues over tier one and leverage ratios, because they do not adjust for risks and are not consistent.

Mizuho Financial Group Inc. (NYSE: MFG) was listed as the most vulnerable at an approximate 2% ratio; and UBS AG (NYSE: UBS) and Citigroup Inc. (NYSE: C) remained among the weaker banks.

HSBC Holdings PLC (NYSE: HBC) was the strongest with a 9.2% ratio; and ING Bank NV (NYSE: ING) and Goldman Sachs Group Inc. (NYSE: GS) were also listed in the stronger bank category.  24/7 Watt St. still argues that Goldman Sachs is a bank that is truly no bank.

When you see reports like this it is not always a signal of an imminent downgrade.  But the tone sure sounds more like downgrades are coming if more capital is not raised or if things do not just start to improve on their own.

JON C. OGG