Tuesday, March 13, 2012

US Bank Stress Test Results

Here is a graph that looks at the relative strength of the US banks bases on the Federal Reserve Stress Test Scenario (CCAR 2012).  The weakest would be on the left, strongest at the right. (Click for larger image) 

The blue bars are the years of Pre-Provisional Net Revenue (PPNR) that would have to pay for losses if the economy tanked has hard as the Federal Reserve tested them under.  The stress test assumed over 13% unemployment, 50% drop in the stock market, and roughly a 20% fall in real estate.  Basically if they are under 1 year, the bank would still be profitable under this scenario.  The green line represents the median for all banks.  On average, most of the banks would be fine.  I would disregard the Morgan Stanley results since the data was erroneous.  They had negative net revenue, due to other expenses.

The red bars represent the tier 1 common ratio assuming no additional capital actions.  This creates more of a level playing field since some planned no dividend increases while others did assume increasing dividends and share buybacks.  The red dashed line represents the median for all banks.  Note banks have to maintain a 4% tier 1 common ratio.  Ally Financial failed this test. 

Good Decisions. 

Best Regards,

Disclosure: Long WFC, and BAC Class A Warrants


  1. Well, BAC near $10-- Cramer had said 'not to late to sell financials' when BAC $5. Today, Cramer says financials best place to be. So, what's the next best deal? And yes, Financials still cheap--but what else is on the radar? I went all in on BAC under $8-$5.22 . If only I had more $$--because I knew it was OK --follow Berkowitz doing own homework, obsessing over fundamentals, listen to conference call on ipod over and over again-study, testing -reading this blog, too!

  2. You know, I hate to admit this, but I was watching Cramer the other day. In my self defence I was running (on my treadmill) and their was nothing else to watch on TV.

    Anyway, what stuck me was how easy it is for Cramer to jump all over whatever is the hot trend. I mean it's too easy. People like to be reminded of how smart they are in whatever area of their life. Of course if you reviewed the record you would likely find that Cramer is useless. It is easy to see why he's so popular because he caters to people who have a short term orientation (and memory).

    Stick to the facts. Ignore the crowd. Derive your self esteem from within.