Friday, February 21, 2014 8:12:12 AM
I think we are talking about the same thing. You are saying "retained earnings", I refer to it as "excess capital", as I commonly hear it referred as such in conference calls when companies are talking about returning excess capital to shareholders if they have nothing better to invest that capital in. Most recently Apple has been mentioned as a company that should return excess capital to the shareholders through dividends.
My point about FnF not being able to pay a dividend until they have excess capital, I think would be the same as saying they won't pay one until they have excess retained earnings.
What I mean by that is that FnF are now limited to how much retained earnings they can keep on their balance sheet. They will need to build net equity before they can pay out a dividend. They will need to have additional capital available in case we go into another economic downturn and they need to add to reserves.
I don't want to put words in your mouth but I think you are implying that as soon as FnF have retained earnings they will be able to start paying a dividend to the preferreds.
I am saying "not so quick". They will need to build some shareholder equity first and not until that equity is built up to the point of being able to reasonably cover another financial crisis.
The Basel Committee is focused as what it refers to as the equity tier one ratio. It essentially consists of only equity and retained profits. I think they now require 7 per cent core tier one ratio for banks.
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