The Official Reggie Middleton Bank Stress Tests
As stated in my earlier posts, I have embarked upon stress tests for certain members of the Doo Doo 32 (As I see it, these 32 banks and thrifts are in deep doo-doo!) as well as other financial services and insurers/reinsurers that I have released analysis on. These stress tests use the published methodology issued by the government, and uses the government's assumptions for the optimistic case. I feel (actually, I know) the government's assumptions are much too rosy to be considered a prudent base case or pessimistic case scenario. See "More on Reggie Middleton's Bank Stress Testing" for the justification behind this line of thinking. Nouriel Roubini has been consistently more accurate in the call of the current downfall than the government's models, thus I feel it is most prudent to rely on his input for the base case scenario.
Below is the link for the stress test results of PNC Bank including the acquisition results of National City, an interesting taxpayer funded combination of two of the Doo Doo 32 (As I see it, these 32 banks and thrifts are in deep doo-doo!).
We have created 3 economic stress test scenarios with RGE Monitor's estimates as the base case, the Fed's base line assumption as optimistic case and a slightly direr (though still plausible) distressed scenario. The Fed's baseline assumptions are on an average higher than RGE's estimates by a factor of 1.33x while under the adverse case the macroeconomic assumptions are lower by a factor of 0.80x. We have used these factors to build optimist and adverse case scenarios.
|Base Case - RGE Monitor|
|Our Optimistic case - Fed's baseline case|
|Adverse Scenario - L shaped recession|
|Factor sensitivity - Base case||1.00|
|Factor sensitivity - Optimistic Case||1.33|
|Factor sensitivity - Adverse case||0.80|
As per RGE Monitor HPI is expected to fall 44% over 2006 levels. S&P Case Shiller has declined 27% since then.
Previous PNC research:
The PNC Stress Test Results
The Professional Version is 56 pages long and has roughly 60% of the output of my proprietary PNC model (there are some formatting issues with the pro addition due to the heft of the tables included). Below is a pasting to illustrate the contents and the amount of intellectual capacity that went into it. I will be releasing a similar stress test for every company that I have a financial interest in.
The Scenario Analysis. 4
Base Case - RGE Monitor. 4
Our Optimistc case - Fed's baseline case. 5
Adverse Scenario - L shaped recession. 6
Relative Value: Sum of the Parts. 7
Net Interest Income. 9
Interest Bearing Liabilities. 11
Non-interest Income. 12
Off Balance Sheet Items. 18
Business Segments. 18
Retail Banking. 19
Corporate and Institutional 24
The BlackRock Investment. 27
Relative Value: Consolidated. 35
Loan Portfolio. 37
Regulatory Ratios. 46
Charge-offs and Delinquencies. 47
FDIC Supporting Data, Tables, Charts and Graphs