Explanation:
Under the Basel III regulatory framework, Common Equity Tier 1 (CET1) capital includes core capital items such as common equity and retained earnings, while certain deductions such as goodwill and other intangible assets must be subtracted from the total. CET1 Capital Calculation: Common equity (2,010) + Retained earnings (3,210) - Goodwill from prior acquisitions (850) = EUR 4,370 million
(Note: Non-callable preferred equity is typically classified as Additional Tier 1 capital, and subordinated debt is classified as Tier 2 capital. They are excluded from CET1.)
CET1 Ratio Calculation: CET1 Capital / Risk-weighted assets = 4,370 / 49,700 = 0.087927 or 8.79%
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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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