Tangible common equity (TCE), the subset of

shareholders' equity In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets. For example, if someone owns a car worth $2 ...

that is not

preferred equity Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt inst ...

and not

intangible asset An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names, as well as software. This is in contrast to physical assets (machinery, buildings, etc.) and ...

s, is an uncommonly used measure of a company's financial strength. It indicates how much ownership equity owners of

common stock Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other Co ...

would receive in the event of a company's

liquidation Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...

. During the financial and economic crisis of 2008–2009, it gained public popularity as a measure of the viability of large commercial banks. When used in a ratio with tangible common assets, it measures a bank's ability to absorb losses (e.g., homeowners defaulting on mortgages) before becoming insolvent. It is one of the factors considered by the

Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all nationa ...

to determine if a bank has become insolvent.

Formula

*''TCE = total equity – intangible assets – goodwill – preferred stock'' *''TCE ratio = TCE / (total assets)'' *''Leverage ratio = (total assets – intangible assets – goodwill) / TCE''

Example

On February 27, 2009, the

U.S. Government The federal government of the United States (U.S. federal government or U.S. government) is the national government of the United States, a federal republic located primarily in North America, composed of 50 states, a city within a feder ...

converted

preferred shares Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt inst ...

common shares Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other Com ...

to increase

Citigroup Citigroup Inc. or Citi ( stylized as citi) is an American multinational investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking giant Citicorp and financial conglomera ...

's tangible common equity."Citi to Exchange Preferred Securities for Common, Increasing Tangible Common Equity to as Much as $81 Billion"
Wall Street Journal, February 27, 2009 In this example, the company's total equity remained the same, but its preferred equity decreased, thereby increasing common equity (and TCE).

References

{{stock market Balance sheet United States Generally Accepted Accounting Principles

Formula

Example

See also

References