Wednesday, February 18, 2009

Bank Leverage Ratios... GE Boomin'

Option ARMageddon via Infectious Greed reports:

As you can see, Morgan Stanley and Goldman have cut their leverage significantly. Citi is in worse shape. BofA and Chase are treading water. GE is the scary one.

December 30th’s was the first balance sheet the banks have published since they received TARP capital. Common shareholders are still in a first-loss position relative to the government, however, because TARP investments were in the form of preferred shares. So I have backed these out in order to arrive at the tangible leverage ratios above.

One BIG caveat with this calculation is that these companies carry “other assets” on the balance sheet, some of which might be intangible in nature. Also, each has significant risk exposure via off-balance sheet entities. The point is, even though these leverage calculations seem high, they actually understate the risks facing common shareholders…