Explanation:
Under Basel III, Common Equity Tier 1 (CET1) capital is calculated by taking the sum of common equity and retained earnings, and then deducting goodwill and other intangible assets. Non-callable preferred equity typically qualifies as Additional Tier 1 (AT1) capital, while subordinated debt qualifies as Tier 2 capital.
The calculation for CET1 is as follows: CET1 = Common Equity + Retained Earnings - Goodwill CET1 = 2,010 + 3,210 - 850 = 4,370 EUR millions.
The CET1 ratio is calculated by dividing CET1 by the total risk-weighted assets (RWA): CET1 Ratio = 4,370 / 49,700 = 0.087927 or 8.79%.
Ultimate access to all questions.
| 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%
No comments yet.