Explanation:
Tier 1 equity capital (Core Tier 1 capital) is equal to common equity plus retained earnings, while goodwill and other intangible assets are deducted. Therefore, the Core Tier 1 capital for the bank is equal to 2010+3,210-850 or 4,370 million. Therefore, the CET1 ratio is equal to 4,370/49,700 or 8.79%.
B is incorrect. This choice also adds in the preferred equity, which is part of Additional Tier 1 capital but not Core Tier 1 capital.
C is incorrect. This choice forgets to subtract the goodwill.
D is incorrect. This choice both adds in the preferred equity and forgets to subtract the goodwill.
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| Item | Value (EUR millions) |
|---|---|
| Common equity | 2,010 |
| Non-callable preferred equity | 500 |
| Subordinated debt | 1,500 |
| Retained earnings | 3,210 |
| Goodwill from prior acquisitions | 850 |
The bank has total risk-weighted assets of EUR 49,700 million. What is the correct ratio of Core Tier 1 Capital to risk-weighted assets (the CET1 ratio) that the analyst should calculate for the bank?
A
8.79%
B
9.80%
C
10.50%
D
11.51%
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