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Strategies & Market Trends : Value Investing
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To: Mark Marcellus who wrote (34387)5/6/2009 10:10:55 AM
From: Spekulatius  Read Replies (1) of 78746
 
re BAC the huge negative is that if indeed the conversion (of government preferred) were to happen is of course the dilution and the fact that now the government becomes a huge stakeholder. Also, my understanding is that the conversion price would be in the 6$ and change range, based on the BAC shareprice before the Geithner announcement minus 10% discount.

Tier one ratio is based on risk weighted assets. The problem with that is that as assets on the balance sheet get downgraded, the Tier 1 ratio goes down rapidly, even when there are no defaults. Since the stress test is assuming worsening economy which almost certainly will lead to downgrades of assets that those banks hold, the Tier 1 ratio becomes an questionable grading system. TCE ratio is not risk weighted so it's an extreme in the other direction. I'd think that both TCE ratio and Tier 1 should give an assessment of the expected performance in worsening environment.
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