Reports this morning that Citigroup is among the losers in the recent bank stress tests confirm our data, reported last week, that the bank’s financial condition has continued to deteriorate in the first quarter, despite reports of profits. (See “Big bank profits are bogus! Massive public deception!”)
Moreover, the stress tests are based on blatantly mild premises. Assuming a more realistic worst-case scenario, the number of large banks failing the tests would be significantly larger. (See “Bank Stress Tests Based on Blatantly Mild Premises.”)
Beyond traditional measures such as capital and asset quality, we believe regulators should also look more seriously at total credit exposure to derivatives trading partners. Based strictly on that metric, JPMorgan Chase, Goldman Sachs, and HSBC Bank USA may be more vulnerable than Bank of America, also cited in today’s reports as needing additional capital. (See “JPMorgan Chase, Goldman Sachs, Citibank, Wells Fargo and More Than 1,800 Other Institutions Believed to Be at Risk of Failure Based on Fourth Quarter 2008 Data.”)
We believe Bank of America will have continuing difficulties, but we do not yet have enough evidence to place it in the same high-risk category as other major banks.
Most important, our data and analysis do not support the Federal Reserve’s headline statement released last Friday that “Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized.” Quite to the contrary, we find that, among the nation’s largest 19 banking institutions1,
- None currently merit a rating of B+ or better, a level that we believe would generally correspond to capital levels well in excess of needed amounts.
- Only three, representing 6 percent of the assets of the 19 — have a rating of B- or B, — considered “good.” They are Bank of New York Mellon, Capital One and State Street.
- We consider eight institutions, representing 63 percent of the assets, to be at risk of failure. They are JPMorgan Chase, Citibank, Wells Fargo, SunTrust, Goldman Sachs, HSBC America, National City and Countrywide Bank.
In conclusion, we believe the stress tests and their conclusions could be very misleading.
1 19 largest selected based on year-end 2008 Call Report data and does not correspond to the same precise institutions as those included in recent stress tests. Size measure is based on total assets of primary banking units. Although reporting separately, this analysis considers Wachovia and Wells Fargo as one institution.
{ 15 comments… read them below or add one }
National City is now owned by PNC. Does that mean PNC is at risk of failure? They also reported better profit:
http://www.cleveland.com/business/index.ssf/2009/04/plain_dealer_filejim_rohr_prev.html
I bought your book and whizzed right through it! Thanks! I learned a lot from reading it and am putting my new knowledge to work already! Question regarding your Citigroup’s Serious Ills Confirmed by New Capital Needs blog post: How can you say that JPM and GS are in danger of failing? Their stock prices are acting too good don’t you think?
Concerned about my 401K money, invested with Wells Fargo. If they go under, could I potentially lose my 401K even though I have everything in it invested in a money market principal preservation stable value fund?
Bsaed on your research I shorted the euro and banks. I am now down about 40% on my bank shorts. Should I hold or get out and take my loss.
Why domany investors not agree with your assessment on the troubled banks. We bought BAC and WFC at price levels lower than they ware today, and sold today for a profit. But the stocks kept going up, depriving us of more gains. Can you explain the inconsistancy between the continued growth in the stock prices and your opinions?
Hi! Martin
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My wife and I have been reading your book aloud together, It is everything they say it is, and so very readable! a MUST read!
The other day I posted the following to Obama’s challenge. If only there was a real suggestion box:
“If you are really interested in helping honest people, then restore
‘integrity money’ to the economy. ‘Agenda money’ - legal tender, fiat
money, debt money, blip money, is killing America. Let the Federal
Government get back to the business of stopping robbers, rather than
cahoots with them!
That’s not too much to ask is it?”
James Jay Ferris - author: Are You Worried Yet? Where Is Money Taking
Us?
One of the issues you are not dealing with is that of currency collapse brought on by our massive debt of worthless paper. Even China is stopping its buying of treasuries. We cannot trust banks or the government. Where (or in what) can we place our soon to be worthless paper so as to retain some value for what is surely going to be the worst time mankind has ever seen?
Ummm martin in your email this morning you asked how you can help me etc etc
I’m not actually in the States, I live in Australia. Reason I haven’t read your book is that I’m not sure of it’s relevance in au. Stumbled across your site a few months back and have been gleaning a few crumbs is all. As to my trading and current exposure to the markets (ASX) down here I am a very small fish with a few $ parked in a trading account ready to start trading options, puts at this time, just a little nervous about pulling the trigger.
cheers
I appreciate your book and advice. It makes sense.
1. My life insurance is with Northwestern Mutual and I can cash it in now or convert to a paid up policy with no payments using the cash value. Should I take the cash or convert to the paid up policy since NW looks like an ‘A’ rated company?
So far, I am beginning to 1. convert to some cash and 2. investing in the market on a short term basis only as you mentioned ’selling on the market highs’.
I am currently using SunTrust, Fifth Third, BOA and BB&T for banking. I use Schwab for some banking, investing, and 401k’s in stock.
Is it urgent to move from SunTrust, 5/3 and BOA?
What do you think of the Schwab type bank?
Thanks for all that you do.. John
Why is SKF, which tracks the financial index acting like a plane with one wing? It has fallen from $268 on March 6, 2009 to $47.90 today, May 4, 2009. That is an 82% decline in less than two months. Is there some logical reasoning behind this overwhelming drop?
You are doing a wonderful job in educating the people to take charge of themselves.
If I have invested in bonds through citbank what will happen to my bonds if in case citibank fails?
Great Job! How will the Credit Default Swap Events be handled by the too big to fail banks that have most of counter party risk? Each event hits their books but if I understand it right, none of this appears in this so called stress test. Just look at Charter One as what was left was auctioned off. These big banks took it on the chin. How can we tell what risk they will face as these Credit Defaults execute?
Can I buy “Ultimate Depression Survival Guide at a book store?
Hi Martin,
It seems to me that since the government will not let Citigroup fail, I cannot lose in buying shares in C at its rock bottom price ($4.06). My friends have bought in at about a dollar, and I am kicking myself for not doing so myself.
Phil