Top 100 Banks Boosted Capital 6% in 1st Half

Despite an industry profit slump, the top 100 bank holding companies increased core capital by almost 6% in the first half of this year, an American Banker survey shows.

The 25 largest companies did even better, showing a 7.6% increase.

Only Two Banks Miss Mark

As of June 30, only two banks - Midlantic Corp. of Edison, N.J., and Houston-based First City Bancorporation of Texas - did did not already meet the 1992 minimum requirement that Tier 1 capital equal 4% of risk-adjusted assets. And Midlantic was only a shade under that mark. The requirement at midyear was 3.625%.

Tier 1 capital, composed mainly of common and preferred stock, is a key category of capital under new guidelines designed by international bank regulators. Those rules take into account the riskiness of a bank's assets when computing capital ratios.

The rise in Tier 1 capital of the top 100 banking companies to $129.3 billion underscores capital's paramount status in banking today.

"There is a general feeling that more [capital] is better than less in this environment," said Rodney L. Jacobs, Wells Fargo & Co.'s chief financial officer.

After a decade of steadily mounting loan losses, capital's role as a cushion against failure is considered more vital than even. Instead of seeking the fat returns that come from steep leverage, regulators and investors are demanding the safety of higher capital.

Even those banking companies comfortably above the 4% threshold are feeling pressure. "What's driving banks are the markets, especially the credit rating agencies," said Ronald I. Mandle, an analyst with Sanford C. Bernstein & Co., New York. "It's not just a question of meeting regulatory minimums."

Availability of Capital

Fortunately for banks, the will for capital has been matched by ways to get it. Investors who shied away from the industry last year have been willing to buy some bank stocks this year, especially preferred issues. Security Pacific Corp. and First Chicago Corp. are among the companies that have carried out preferred offerings in the first half of the year.

Other banks have built capital through retained earnings, sometimes combined with reduced dividend payouts to shareholders.

Meanwhile, many banks are shrinking in size by selling assets or not replacing loans that come due. Assets of the 100 largest banking companies dipped marginally in the first half of the year, the American Banker survey shows.

The combination of asset shrinkage plus more capital has significantly improved capital ratios, the key measure of capital adequacy.

"If you don't have asset growth, you can build capital ratios impressively through retained earnings," noted Mr. Jacobs.

Even some companies that lost capital between December and June managed to improve capital ratios by shrinking assets at a faster pace.

The top 100 banking companies raised the ratio of Tier 1 capital to risk-adjusted assets to 8.20% at the end of June, from 7.67% at Dec. 31, according to the survey. For the 25 largest companies, the ratio rose to 7.11% from 6.37%.

Several of the nation's largest banking companies led the way in raising capital levels, but with very different goals.

Citicorp and Chase Manhattan Corp., the first and third largest companies, are two capital-weak organizations scrambling to get comfortably above regulatory minimums before the Tier 1 deadline arrives. Citicorp lifted its Tier 1 capital ratio to 4.08% from 3.26% during the first half of 1991, while Chase improved its ratio to 4.89% from 4.33%.

J.P. Morgan & Co., the nation's fourth-largest company, has the strongest balance sheet among New York money-center banks, but nevertheless raised its Tier 1 ratio to 6.71% from 6.30%. More capital helps it keep its strong credit rating, a vital advantage in transaction-oriented wholesale businesses.

Meanwhile, strong regional banks such as Banc One Corp. and Norwest Corp. are boosting equity to fuel expansion. "Acquisitive banks have been big raisers of capital," said Arthur P. Soter, analyst with Morgan Stanley & Co.

Some Buck Trend

Because of loan losses, three banking companies in the depressed Northeast - Bank of Boston Corp., Shawmut National Corp., and Midlantic - bucked the trend toward improved capital ratios.

BankAmerica Corp., one of the nation's healthiest companies, saw its Tier 1 ratio slip to a still-comfortable 6.77% from 8.07%. The company has been spending capital at a rapid rate to finance interstate acquisitions.

First City, with Tier 1 capital at 3.84% of risk adjusted assets, registered the lowest ratio of the top 100 banking companies. The company has been trying to increase its capital for almost a year.

Table : The Five Highest Tier 1 Ratios...

Among top 100 bank companies Tier 1 ratio as of June 30United Missouri 17.49%

Bancshares, Kansas City

Mercantile Bankshares, 15.14

BaltimoreRepublic New York 14.13First Virginia Banks, 14.01

Falls Church

State Street Boston 13.10

Table : And the Five Lowest

First City Bancorporation 3.84% of Texas, Houston

Midlantic Corp., 3.97

Edison, N.J.

Citicorp, 4.08

New York

BanCal Tri-State, 4.12

San Francisco

Bank of Boston 4.80

Source: American Banker

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