Lower tangible capital formation means lower real wages in the future.
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It is curious to argue, as they seem to, that measuring tangible capital poses some problems, whereas the supposed difficulties over measuring intangible capital are almost entirely in their critics' muddled imagination.
Whitney says Citi's tangible capital ratio of 2.8% is well below the 4.7% average of banks of similar size, the result of a flurry of acquisitions over the last two years that bulked up its assets by 35%.
It's yielding 4.8% and has a fortresslike tangible equity ratio (capital minus intangible assets) of 13.9%.
Barclays bank analysts noted today that despite continued earnings and tangible book growth, increased capital deployment and record capital and liquidity levels, and improved asset quality levels bank investors are still hesitant on the sector.
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Wells Fargo, for instance, has more money in second liens than it has tangible common equity, or the most solid form of capital.
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"With its high leverage ratio to tangible common equity, we believe Lehman needs to raise substantial capital regardless of market conditions in order to take its needed write-downs, " Einhorn said in an email Tuesday.
In a country where government deficits make capital scarce and interest rates high, the best firms rely on intellectual assets rather than on tangible ones.
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