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Tangible Common Equity, or TCE

Tangible Common Equity used to be an obscure and rarely-used accounting term. Today it's one of the main motivators behind the government's decision to turn the American taxpayer into one of Citigroup's biggest stockholders. Senior Editor Paddy Hirsch explains.

About the author

Paddy Hirsch is a Senior Editor at Marketplace and the creator and host of the Marketplace Whiteboard. Follow Paddy on Twitter @paddyhirsch and on facebook at www.facebook.com/paddyhirsch101
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I very much enjoy most of these whiteboard presentations, but this one is seriously flawed. Preferred stock issued by a bank is NOT an asset - it shows up on the liabilities and equities side of the balance sheet. Numerous errors in this presentation follow from this very basic error. The presentation should be withdrawn.

What is actually happening is that the bank needs equity in the form of common stock (without the priority and dividend obligations associated with preferred stock) and the government is accommodating the bank by moving a portion of the government's investment in the bank further down the right hand side of the bank's balance sheet. This has nothing to do with the asset side of the bank's balance sheet and nothing to do with tangible (as opposed to intangible) assets.
I very much enjoy most of these whiteboard presentations, but this one is seriously flawed. Preferred stock issued by a bank is NOT an asset - it shows up on the liabilities and equities side of the balance sheet. Numerous errors in this presentation follow from this very basic error. The presentation should be withdrawn.

What is actually happening is that the bank needs equity in the form of common stock (without the priority and dividend obligations associated with preferred stock) and the government is accommodating the bank by moving a portion of the government's investment in the bank further down the right hand side of the bank's balance sheet. This has nothing to do with the asset side of the bank's balance sheet and nothing to do with tangible (as opposed to intangible) assets.

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