As the conversation turns to the restoration of dividends and a revival in dealmaking, earnings projections help to scale anticipated capital stockpiles, and outline the evolving pecking order.
Analysts project that U.S. Bancorp will ring up returns on assets of 1.21% to 1.52% from this quarter through the end of next year, according to averages compiled by Bloomberg News. Assuming that risk-weighted assets hold at third-quarter levels, dividends stay at current rates and net income otherwise flows into Tier 1 common equity, that would mean the company could add 30 to 40 basis points to its Tier 1 common ratio every three months (see charts below).
Among the group of regional giants charted here, Regions Financial Corp. is at the other end of the spectrum. It paid about $50 million in dividends on the government's preferred stake in it in the third quarter on top of a $150 million net loss, and analysts forecast that the company will continue to lose money through the second half of next year.
Under the simplistic assumptions used here, however, the bleed would not be sufficient to pull Regions under a 7% Tier 1 common ratio — a key effective minimum under the Basel III rules. (Institutions will likely seek to modestly exceed the mark and create a buffer against regulatory controls, including restraints on dividends, that would apply if they entered a red zone below the target, and additional requirements for systemically important companies have yet to be determined.)
Dim earnings expectations for SunTrust Banks Inc. and its outstanding Troubled Asset Relief Program burden suggest it will likewise have little capital latitude through next year, but prospects for PNC Financial Services Group Inc. look relatively strong.
Anticipating the completion of a regulatory review of its capital plan next quarter, U.S. Bancorp said this month that it ultimately aims to resume its pre-crisis practice of returning 75% to 80% of earnings to shareholders through dividends and buybacks, and use the other 20% to build the business, including through acquisitions.