The safest and least safe banks to work for now

If you're a banker looking for a job, safety has become the equivalent of a three year guaranteed bonus. When bankers decide where to work, headhunters tell us they are no longer prioritizing pay and perks, but instead placing a premium on safety and steadiness. No one wants to join a high-paying, gung-ho bank that will pull back a year or so later (Religare being a frequently cited example) and lay a lot of people off.

Based on banks' fourth quarter results for 2012, analysts at CreditSights have assembled the following chart which could be taken as a proxy for banks' safety/stability. It shows which banks are best capitalized under the coming Basel III definitions of capitalization. On one hand, the best capitalized banks are least likely to go belly-up first if a major negative event comes to pass. On the other, the best capitalized banks have fewer changes to make in order to meet Basel targets. They could be viewed as the most stable for prospective employees.  On this measure, Swedish banks look best. German banks look worst.

All banks need to get ready for the implementation of Basel III on January 1st 2019. CreditSights points out that the new Basel rules will impact banks in two ways. Firstly, they will increase banks' risk weighted assets by allocating higher weightings to things like securitization, credit valuation adjustments and central counterparties. Secondly, they will reduce the amount of core tier one capital banks have already accumulated by requiring bigger reductions for deferred tax assets.

Under the new rules, all banks will need a minimum common equity tier 1 ratio (core equity capital vs. total risk weighted assets) of 7.5%. The biggest, so-called G-SIB banks ('global systemically important banks', including all major investment banks) need an extra capital buffer which will take their total to between 8.5% and 9.5%. Swiss banks need to meet even more stringent targets, of 'Swiss core capital' (core capital as defined by the Swiss!) of 13% of risk weighted assets. In theory, this means Swiss banks are safest to work for. In reality, it means Swiss banks are having to make some of the biggest changes to meet the new requirements (witness UBS's massive redundancy programme).

According to CreditSights, Deutsche Bank, Credit Suisse and Barclays have the longest way to go before they're ready for Basel III. As the chart below shows, both Barclays and Deutsche need to make the biggest improvements in percentage terms. By comparison, US banks look comparatively well adjusted to the new reality. So does UBS, which has already bitten the bullet.

Does preparedness for Basel III really matter? Yes, to the extent that banks that don't meet the new ratio will need to cut risk weighted assets and, or, to raise capital. Cutting risk weighted assets invariably equates with job losses in capital intensive areas of the bank. Witness RBS's January 2012 announcement that it was cutting 3,500 investment banking jobs last year whilst trimming risk weighted assets by £75bn, or UBS's announcement last October that it was trimming risk weighted assets in the investment bank to CHF70bn from January 2013, and also making 10,000 redundancies.

How risky is Deutsche Bank? The German bank made 1,700 corporate and investment bankers redundant last year and didn't announce any new job cuts at the time of its fourth quarter results. However, Deutsche's fourth quarter capital ratios were strengthened by changes to its risk models, a fact noted by various skeptics at the time. These changes enabled Deutsche to reduce risk weighted assets and to flatter capital-to-risk-weighted-assets-ratio, without really doing anything to address the underlying issues. CreditSights analysts point out that if Deutsche is measured on the basis of capital to total assets, it performs far less well than its peers - with a ratio of only 1.9% compared to 2.8% for Barclays and 3.8% for Credit Suisse.

A spokesman for Deutsche Bank in Frankfurt disputed Deutsche's comparative capital levels, however. Deutsche is as prepared as other banks, he said. Moreover, he said that US banks have an unfair advantage when it comes to declaring their capital ratios. 'We aren't able to net our derivatives exposure under IFRS accounting rules, but banks operating under US GAAP can use derivative netting. Their capital ratios are flattered by this," he said. However, Simon Adamson, author of the CreditSights report, said this would make no difference to Deutsche's position in the first chart above. "Whether you're reporting under IFRS or GAAP, the definitions of capital and risk weighted assets should be the same," he said.

In a note last month titled 'mad, bad and dangerous to work for', Berenberg analysts also suggested European banks may be best avoided. Berenberg also suggested that Scandinavian banks are the safest, but said French banks are among the least safe now.