This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

'Stress Test' Preview: U.S. Bank Problem List

Federal regulators by the end of April will complete "stress tests" to determine the financial health of the top 19 major U.S. banking organizations with more than $100 billion in assets. While we can't replicate the government's tests with available data, we can get a pretty good idea of which banks will be scrutinized and what the results will look like.

The stress tests are "forward-looking capital assessments" meant to determine whether any of the large bank holding companies need "an additional capital buffer during this period of heightened uncertainty," according to the Treasury's White Paper on the Capital Assistance Program. Regulators will conduct two tests: One using assumptions for gross domestic product growth and unemployment expected by most economists; and another using a "more adverse scenario," reflecting a deeper recession than what is currently forecast.

Holding companies found to be in need of additional capital will have six months to either raise some or all of the capital privately, or apply to immediately raise some or all of the needed capital from the treasury, through the CAP.

In the below list, we have emphasized the ratio of nonperforming loans and debt securities to tier-1 capital and loan loss reserves. This is also known as the "Texas Ratio."

Stress Test

While so many recent discussions have focused on tangible common equity ratios, the fact is that preferred equity capital is still capital. Tier-1 capital is total equity capital less some goodwill, other intangible assets and, in some cases, non-qualifying preferred stock.

While we can't replicate the stress tests that bank regulators and holding companies will be running, the Texas Ratio at least shows which of the largest holding companies have the most exposure of tier-1 capital and loan loss reserves to problem assets. A level over 20% is typically considered excessive.

Here's a list of all U.S. holding companies with total assets greater than $50 billion that filed Consolidate Financial Statements for Holding Companies (FR Y-9C) with the Board of Governors of the Federal Reserve System, for Dec. 31. For holding companies controlled by foreign companies, the top holding company is also listed:

Largest Holding Companies with Federal Reserve Y-9C Filings
Dec. 31, 2008 ($Bil)

It's important to point out that the figures for Bank of America (BAC) don't include the additional $10 billion in additional capital the company received via the Treasury's Troubled Asset Relief Program, or TARP, on Jan. 9, following the year-end acquisition of Merrill Lynch. On Jan. 16, the Treasury announced it would provide an additional $20 billion in new capital to Bank of America. Since neither the assets acquired from Merrill nor the $30 billion in new capital were included in the company's Dec. 31 filings, Bank of America may appear in stronger shape when first quarter 2009 numbers are available

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs