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Results stress(less) test for US banks released
The Fed is leaking the results of the so-called stress-test. According toBloomberg:
May 6 (Bloomberg) -- Bank of America Corp., Citigroup Inc., Wells Fargo & Co.and GMAC LLC are among the companies judged to need additional capital according to results of regulators’ stress tests on the 19 largest U.S. banks.
Bank of America has the biggest shortfall, at $34 billion, according to people familiar with the matter. Citigroup’s requirement for deeper reserves to offset potential losses over the coming two years is about $5 billion, people with knowledge of that bank’s results said. Wells Fargo requires about $15 billion, while GMAC’s need is $11.5 billion, one person said.
Goldman Sachs Group Inc., Morgan Stanley, MetLife Inc., JPMorgan Chase & Co., Bank of New York Mellon Corp. and American Express Co. were deemed not to need additional funds, the results show.
Wells Fargo, the fourth-largest U.S. bank by assets, requires about $15 billion, a person familiar with the matter said. The San Francisco-based bank got $25 billion in taxpayer funds last year. Wells Fargo spokeswoman Julia Tunis Bernarddeclined to comment.
... Chairman Richard Kovacevich in March called the administration’s stress-testing program “asinine” and Berkshire Hathaway Inc. Chairman Warren Buffett, whose company is Wells Fargo’s biggest shareholder, said May 3 that Wells Fargo didn’t need any more capital. Although this evening a joint statement was released by all US money printers (I mean FED, FDIC, Treasury etc) that the full results will be disclosed tomorrow, most of the results seem to have been published already. The stress tests oblige banks to have minimum capital in case of an adverse scenario.
The SCAP capital buffer for each BHC is sized to achieve a Tier 1 risk-based ratio of at least 6% and a Tier 1 Common risk-based ratio of at least 4% at the end of 2010, under a more adverse macroeconomic scenario than is currently anticipated.
The problem with the adverse scenario is that it outperforms for instance the scenario of Nouriel Roubini, the US economist that has been the most accurate throughout the crisis. When his comments are revealed, we will add them to this post.
The Fed and the government are taking a big reputation risk with this stress test. If the economic scenario becomes worse than the 'adverse scenario', or if a new round of recapitalisation of banks will become necessary after the summer, Bernanke and Geithner will have zero credibility.
7 Comments
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Frank
On 6 May, 2009
The stress tests are a joke. Bernanke, Geithner and even Obama allready have zero credibility. No one with any brains left can possibly believe what Geithner says. No one with any brains left can possibly believe what the banks say. Banks hide their losses in tier3 assets and turn losses into gains by using altered accounting rules. These shenanigans are not to be trusted. Stress tests are a fraud. Negative results are hidden from the public. The results were predetermined and the so-called pessimistic scenario used for the test was a joke: unemployment rate rises to 8.9% by the end of this year with home prices falling an additional 22% for the same period. My guess is that this is the optimistic scenario.
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Scrutinizer
On 7 May, 2009
@Frank: hier sluit ik me volledig bij aan.
Overigens ergert het mij dat Roubini steeds zo bejubeld wordt.
Pas sinds een jaar of 2 werd ie wat voorzichtig en dan iets negatiever dan de mainstream en prompt werd ie in de media met een titel als Dr. Doom getooid.
En dat terwijl dit toch de geuzennaam van Marc Faber was, die de crisis al jaren eerder zag aankomen en er (zowel) een pessimistischere (als m.i. juistere) kijk op heeft. Maar hij niet alleen. Ook iemand als Jim Puplava begrijpt er meer van dan Roubini en had het jaren eerder in de mot.
Dat blaadjes als de Tijd of de Standaard met Roubini dwepen, verbaast me niets, maar van iemand van Geerts kaliber verwacht ik toch dat hij andere bronnen citeert. -
Bart
On 7 May, 2009
@ scrutinizer,
de verdienste van Roubini zit hem m.i. niet in het feit dat hij de eerste zou zijn (zegt hijzelf ook niet, er zijn permabears genoeg), maar dat hij als het begon te spannen, nog voor iemand het "in de mot" had, haarfijn begon uit te leggen wat en hoe het zou mislopen. Ook toen het nog "goed" ging als enige tegen allen op het world economic forum, chapeau. Orgelpunt was wel zijn "12 steps..." Je kon zo stapje per stapje (en het ging plots wel heel snel) volgen hoe de cascadeschakeling richting euh... deze toestand ging. Die omschrijving vond ik nergens duidelijker, voor mijn beperkte kennis van zaken.
Persoonlijk kan ik zeggen nog geen cent verloren te hebben in deze hele crisis (blozend integendeel), niet omdat ik er zelf zoveel van afweet, maar juist door Roubini et al. op tijd gelezen te hebben. Ik ben zeker geen kritiekloze fan; de Fed etc... zijn koorknaapjes vergeleken met wat hij reeds zou geïmplementeerd hebben. De vraag of dit experiment zou lukken zou dan nog veel prangender zijn (of net niet, je weet nooit natuurlijk).
Diegenen die op fundamentelere wijze jarenlang de zwakheden van het huidige systeem aanduidden hebben zeker een heel grote verdienste. Maar een pragmaticus ipv een dogmaticus (wat kan je er trouwens aan doen?) is ook zeer nuttig gebleken. Bovendien denk ik niet dat er fundamentele veranderingen komen, tenzij alles volledig in puin ligt. Het was bijna zover, maar bijna is helemaal niet.
"The Fed and the government are taking a big reputation risk with this stress test. If the economic scenario becomes worse than the ‘adverse scenario’, or if a new round of recapitalisation of banks will become necessary after the summer, Bernanke and Geithner will have zero credibility."
Truth! But they have an advantage. They can change the rules and scenario constantly and those who question them with the most "weight" are "only" the Chinese and Russians... (and they have very good points I think personally)
As long as they keep releasing the bad news in "manageable" increments, keeping the faith "there is no alternative" afloat, they just might keep getting away with it a little longer. After all, the American Dream, however tattered, lingers on as the ultimate carrot.
The truly worst scenario would be that it all works out just fine. Then we'd be completely done somewhere down the road. -
incognito
On 7 May, 2009
De hogepriester 'lekt' de resultaten van het regendansje. Alles is ok, alles is onder controle. De hogepriester en zijn medewerkers hebben een perfect inzicht in het systeem en weten dus ook perfect wat er moet gebeuren om het te redden. Als we hun raadgevingen volgen, krijgen we binnenkort gegarandeerd regen.
But there are good reasons not to put much stock in the stress tests. The notion of the tests is that regulators, economists, and executives can project the impact of macroeconomic changes on large, highly leveraged institutions and their debt. But if there is anything we have learned in the past year, it's that the entire financial system, from the Federal Reserve on down to the street-corner economic forecaster, has proved catastrophically unable to make such projections. Given all the complex variables involved, it's extremely difficult to know with certainty how banks will perform in the coming months.
http://www.slate.com/id/2217803/ -
NDoms
On 7 May, 2009
It is indeed very difficult to predict how financial and non-financial conglomerates will react in a worsening global economic climate.
The stress test was not used as a binding or mandatory request for additional capital injection. It is used to protect the banks against future losses and write-offs against the huge wave of the CMBS market that is currently unfolding.
I disagree with the estimate about the unemployment rate and the housing market downturn.
IMO, the unemployment rate, which currently stands at 8.9% (artificially because the real rate is 15.6%) will increase to 11% by year-end. That figure does not include Chrysler or GM.
The residential housing market will continue to see a further decline by 5%, depending on the region. Such decline may be larger due to short-sales and shadow inventory that is currently hidden.
The second large impact will come from the CMBS market, which we are now only getting a taste of.
Sincerely,
Nick Doms
CFO
www-sirudorealty.com -
incognito
On 7 May, 2009
from krugman's nyt blog, it shows again that this stress test thing is not much more than a superficial show to bolster confidence (even though it might not be warranted by the real state of the banks), will it work? sure, why not:)
Among other reasons because the public at large wants to believe that the financial system is fundamentally healthy:
Leaking under stress
John Hempton has a good question, which other people have asked me: who is leaking about the stress tests?
Traditionally, leaks to the press come from officials trying to curry favor with journalists, who will treat them favorably in the future. (See Woodward, Bob.) But that’s kind of hard to see as a motive in the case of the relevant economic officials here — possible, or maybe it’s people on the political side of the White House, but it doesn’t feel right.
Alternatively, there’s Yves Smith’s version: these are all trial balloons to see how outsiders will react to different stress reports.
But that just adds to the bad feeling about all this. Even Brad DeLong, who has been relatively sympathetic to the administration here, is disturbed by the idea that regulators are negotiating with the banks about the test results. Now it seems as if the report’s contents may also be dictated by what, based on the response to leaks, the informed public is willing to swallow. (”Would you believe it if we say Citi is fine? OK, what if we say they need $5 billion? Not enough? How about 10?”)
I hope I’m not being too cynical here. But it would be nice if the administration would, just once, do something to dispel that cynicism.
http://krugman.blogs.nytimes.com/
