The Official Reggie Middleton Bank Stress Tests

By: Reggie Middleton | Mon, Apr 13, 2009
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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
  2009 2010
GDP -3.4%  
Unemployment 10.0% 11.0%
Price Index -16.3%  
 
Our Optimistic case - Fed's baseline case
  2009 2010
GDP -2.0%  
Unemployment 8.4% 8.8%
Price Index -14.0%  
 
Adverse Scenario - L shaped recession
  2009 2010
GDP -4.9%  
Unemployment 11.5% 12.5%
Price Index -21.3%  
 
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.

Jan-06 202.44
Current Index 146.40
  -27.7%

Previous PNC research:

PNC Report 050508 revised 2008-08-30 06:38:42 711.95 Kb

PNC Report_update final - Retail 2008-10-15 13:21:38 337.21 Kb

PNC Report_update final - Pro 2008-10-15 13:21:22 590.98 Kb

The PNC Stress Test Results

PNC Stress Test Retail 2009-04-13 02:11:08 323.51 Kb

PNC Stress Test Pro 2009-04-13 02:10:17 3.11 Mb

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.

Pro Contents

Summary. 2
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
PFPC. 25
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

 


 

Reggie Middleton

Author: Reggie Middleton

Reggie Middleton
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Reggie Middleton

Who am I?

Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.

I pay for significant information and data, and am well aware of the value of quality research. I find most currently available research lacking, in both quality and quantity. The reason why I had to create my own research staff was due to my dissatisfaction with what was currently available - to both individuals and institutions.

So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.

Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned consumer banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart.

So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities. I have included a more in depth bio at the bottom of the page for those who really, really need to know more about me.

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