Why the focus on common shares?
Common shares are a conservative way to measure how much capital a company has on hand to cover losses. Investors and regulators are paying particular attention to “tangible common equity,” or TCE, which basically measures how much common shareholders would get if the institution were liquidated. Until now, regulators measured banks’ financial health mainly by its so-called Tier 1 capital level. Tier 1 capital includes common equity, but also preferred equity and retained earnings. Most banks, including Citi, are well capitalized by Tier 1 standards, yet are struggling to raise capital to cover future losses. This paradox fanned concerns among regulators and investors that judging a bank’s financial health by its Tier 1 capital was inadequate. Ned Kelly, head of global banking at Citigroup, believes that while the economic environment has enhanced the focus on tangible common equity, “to the extent that things improve, the focus may very well recede.” Q: Will banks need furthergovernme
