Given the following information in the PDF, I need to find the:

a) Leverage Ratio

b) Risk Adjusted value

c)CET1, Tier I and Total capital ratios?

d) What capital adequacy category does the bank fall under with respect to each ratio? What the banks overall capital adequacy categorization?(25 pts)

e) Briefly explain what each of the capital ratios tells you about the banks capital adequacy be specific: what does each categorization tell you about how safe/risky the bank is in terms of capital and leverage hint: why are there 4 ratios how do they differ, what additional information does each offer? (25 pts)

Financial Institutions FNAN 321 Capital Adequacy Project Instructions 1. Work: to receive credit, you must show all of your work (for each calculation) in a complete, organized and legible fashion. You must work out each step for each calculation as discussed in class Each step must be clearly labeled and each calculation must be clearly demonstrated Do not present your work in table format!!! That is, any assignment that purely replicates the lecture slides with different numbers will receive half credit. To receive full credit you must label each step and clearly write out the calculations associated with the respective step. Furthermore, each calculation must also be labeled. Points will be deducted for calculations that are not clearly labeled. You will be graded on exposition, accuracy and completeness of your work. 2. Complete Assignment: to complete the assignment you must attempt all of the assigned problems/questions. If any of your answers are left blank or do not show sufficient effort the assignment will be marked incomplete. Incomplete assignments will receive no credit. 3. Answers: Your solutions must be clearly marked by placing a box or a circle around the final answer for calculation problems. 4. Format: homework must be hand written. Electronic copies of the assignment will receive no-credit 5. Submission: The assignment must be submitted in class on the due date. The due date for each assignment is one week after it is assigned. Any other form of submission including but not limited to: late assignments, emailed assignments, assignments dropped in my mailbox or the department drop box will receive no-credit. Total Possible Points = 285 Your Score = ________________ Capital Adequacy Project Solutions Sigma Bank has the following balance sheet in millions of dollars. ASSETS Current assets Cash Petty cash Marketable Securities Long-Term corp. bonds Residential Mortgages Commercial mortgages Prepaid insurance Total current assets Investments Sovereign bonds Loans to foreign banks Other investments Total Investment Property, plant & equipment Land Land improvements Buildings Equipment Less: accum. depreciation Prop, plant & equip - net Intangible assets Goodwill Trade names Total intangible assets Other assets Total assets $21 0.0001 8 40.5 31 3.8 1.5 106 10 11 9 30 5.5 6.5 169 201 -56 326 LIABILITIES Current liabilities Repo Agreements Commercial Paper Wages payable Interest payable Taxes payable Federal Funds Loans Unearned revenues Accrued income Total current liabilities $265 35.9 8.5 2.9 4.1 1.1 1.5 2.0 321 Long-term liabilities Senior Comm. Note payable Senior Notes payable Subordinate Notes Payable Perpetual Debt Convertible Notes Total Long-term Liabilities 110 236 19 20 5 390 STOCKHOLDERS' EQUITY Common stock Retained earnings Minority interest in subsidiaries Perpetual preferred stock (Qualified) Intermediate Preferred stock Less: treasury stock Total stockholders' equity 70 19 5 9 6 -50 59 21 284 305 3 $770 Total liab. & ' equity $770 Balance Sheet Notes: Note on hybrid securities Basel III provides guidelines for the type and amount of hybrid securities to be used in Teir I capital. For the purposes of this assignment, you can assume that Intermediate preferred stock is included but convertible debt is not. Note on Treasury stock CET1 Capital is calculated net of treasury stock. That is common stock less treasury stock Note on accumulated depreciation In the calculation of risk-adjusted assets, the value of fixed assets such as buildings, land, equipment, etc. is taken net of accumulated depreciation. Note on Marketable Securities Marketable securities can be treated like cash Notes on assets held: $10M of residential mortgages are category 2 with LTV greater than 90% The rest of residential mortgages are category 1 with LTV between 60% and 80% Note on Prepaid insurance Pre-paid insurance can be treated like cash Note on Commercial Mortgage The bank is restricted to lending only to corporations with an S&P credit rating of AA or better Note on Sovereign Debt 50% of sovereign debt has a CRC rating or 2 the rest has a CRC rating of 3 Note on foreign bank debt Foreign bank loans are all made to banks in countries with CRC rating of 4 Off Balance Sheet Items Off balance Sheet contingent guarantee contracts $40 million Direct-credit substitute standby letters of credit issued to a BBB+ rated U.S. Corp. $40 million commercial letters of credit issued to a BBB - -rated U.S. corporation Off-balance sheet derivatives $200 million 10-year interest rate swaps with a value of -50 mill to Sigma $100 million 2-year forward /$ contracts with a value of 20 mill to Sigma Questions: Calculate the banks: a) Leverage ratio (50 pts) b) Risk-adjusted asset value (125 pts) c) CET1, Tier I and Total capital ratios? (60 pts) d) What capital adequacy category does the bank fall under with respect to each ratio? What the bank's overall capital adequacy categorization?(25 pts) e) Briefly explain what each of the capital ratios tells you about the bank's capital adequacy - be specific: what does each categorization tell you about how safe/risky the bank is in terms of capital and leverage - hint: why are there 4 ratios how do they differ, what additional information does each offer? (25 pts)