This Day On The Street
Continue to site
ADVERTISEMENT
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

'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 - Get Report) 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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
BAC $16.35 -0.55%
C $53.35 -1.51%
FITB $20.35 -0.44%
HBAN $10.98 -0.63%
STI $42.17 -0.66%

Markets

DOW 17,928.20 -142.20 -0.79%
S&P 500 2,089.46 -25.03 -1.18%
NASDAQ 4,939.3270 -77.6020 -1.55%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs