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After two and a half months, the results of the government’s stress test have come out. The test measures the health of nation’s 19 largest banks, all of which have total assets of more than $100 billion. It assesses whether the banks would need additional capital to survive in two scenarios. The more adverse scenario assumes real GDP growth of -3.3 percent, an unemployment rate of 8.9 percent, and another drop of 22 percent in housing prices in 2009, with further deterioration in 2010.
According to the results, among those banks that would need to raise more capital are Citigroup and Bank of America. Citigroup will need more than $5 billion and Bank of America as much as $34 billion. This raises concerns that some of the largest national banks would be less likely to survive a worsening economic climate. The table below contains the stress test results for the 19 banks that the government examined. Chartered national banks are listed in italics and regional banks in roman type. Stress test results are in the first column. They suggest that the larger amounts of capital that national banks need put them into worse positions than regional banks. Another way to examine the banks is to compare two other measures: the ratios of non-performing assets (NPA) to total loans, shown in column two, and the tier 1 capital ratios, shown in column three. | | Capital Needed
(in billions)
| NPA/Total
Loans | Tier 1
Capital Ratio | Health Score | | SunTrust Banks Inc. | 2.2 | 4.21% | 11.00% | 152 | | Citigroup | 5.5 | 3.97% | 11.80% | 162 | | Regions Financial Corp. | 2.5 | 3.24% | 10.37% | 164 | | Fifth Third Bancorp | 1.1 | 3.19% | 10.90% | 169 | | Keycorp | 1.8 | 2.70% | 11.16% | 185 | | BB&T Corp. | None | 2.76% | 12.10% | 192 | | Bank of America Corp. | 33.9 | 2.65% | 11.80% | 193 | | GMAC LLC | 11.5 | 2.26% | 10.60% | 198 | | Capital One Financial Corp. | None | 1.91% | 11.40% | 225 | | PNC Financial Services Group | 0.6 | 1.73% | 10.20% | 228 | | Wells Fargo & Co. | 13.7 | 1.50% | 8.28% | 234 | | J.P. Morgan Chase & Co. | None | 1.61% | 11.30% | 248 | | US Bancorp | None | 1.56% | 10.90% | 250 | | Bank of NY Mellon Corp. | None | 1.00% | 13.80% | 362 | | State Street Corp. | None | N/A | 19.10% | N/A | | Goldman Sachs Group | None | N/A | 13.70% | N/A | | Morgan Stanley | 1.8 | N/A | 16.40% | N/A | | MetLife | None | N/A | 9.21% | N/A | | American Express Co. | None | N/A | 9.70% | N/A |
* Information is as of the first quarter 2009. The ratio of non-performing assets (NPA) to total loans measures the quality of lending and gives the percentage of a bank’s loans that are past due 90 days or more. These loans are regarded less likely to be repaid. The tier 1 capital ratio is a measure of a bank’s core capital relative to its risk-adjusted assets. It represents a firm’s ability to absorb losses and conserve resources under distressed conditions. We constructed a measurement called the health score that is based on these two ratios and that compares each bank with its peers on the list. The scoring gives a quick and dirty way to compare the banks with regard to their loan quality and capital adequacy. A healthier bank has a higher score than a relatively unhealthy bank. Based on the health scores for the banks for which information is available, national banks are in better shape than regional banks, with the exceptions of a few that have long been thought of as being in big trouble.
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With over thirty years of operating a business I can readily advise most small business owners that if they really need money banks are not the place to go. They will generally not provide enough financial support...yet they will repeatedly go overboard on the latest fad...in the late 70's and early 8o's any oil driller could wave his hand and the banks would happily drop millions on them. Some may recall banks going under because of over zealous support of oil drilling...One bank Continental Illinois National Bank along with associate banks went under over poor loans to oil drillers. The Savings & Loan fiasco of the early 80's and of course the current mortgage lending that had to involve...greedy and crooked real estate brokers, appraisers, bank managers and wall st houses in order for it to occur.
And now we reward the ineptness of these same managers...
It's really a sad world Charlie Brown!!