Monday, March 2, 2009


JPM: The Stress Index results from JPM continue to be the best among the top-four banks, although the organization is slightly above industry stress sub-indices for defaults and capital. JPM’s ratio of EC to Tier 1 RBC is up slightly from Q3. But the difference, IOHO, is the 20 point advantage in terms of operating efficiency between JPM and C.

And remember, that JPM sold their RMBS business to GMAC, GE et al. (LOL) and paid pennies on the dollar for WaMu. We like Jaime Dimon and JPM more and more, but problems still lie ahead. (Stress Index Letter Rating = "A")

Bank of America (BAC): With the second highest stress level in the top four after Citigroup, BAC is in the unenviable position of being number two on our list of banks likely to be resolved during 2009. While the lead unit has a Stress Index score of 1.4, the score for FIA Card Services (FKA MBIA) at 4.0 drags up the stress score for the aggregate BAC bank rollup. Only time will tell whether the accumulated financial and legal issues due to the Countrywide and Merrill transactions force BAC to go back to the government for more capital. (Stress Index Letter Rating = "A")

Citigroup: With a Stress Index Score of 21.5, the aggregate scores for the subsidiaries of Citigroup are more than an order of magnitude above the industry average stress levels. The score is driven primarily by negative ROE, which maxed out at 100 on the ROE sub-index in Q4 2008. Sub-index scores for defaults at 4.0 and capital at 1.5 (vs. 2.2 and 1.0 for the industry, respectively) also contribute to the high score for Citigroup. Perhaps most telling, however, is the aggregate bank unit efficiency ratio calculated by the FDIC, now above 70%, a measure of the cost effectiveness of the subsidiary banks. (Stress Index Letter Rating = "F")

Wells Fargo (WFC): Now reflecting the acquisition of Wachovia, WFC’s 20 FDIC insured units are showing a significantly higher level of stress that before that transaction. That said, the aggregate bank only profile for WFC at Q4 2008 is above industry stress levels only with respect to capital at 1.3 vs. the 1.0 industry benchmark. The consolidated, bank-only WFC profile is not a thing of beauty, however. Lending returns have fallen sharply and the ratio of Economic Capital to T1 RBC is now above 2:1 vs. 1.4:1 in Q3 2008. Indeed, comparing the pre- and post-Wachovia profiles for WFC is a sobering exercise. Stay tuned. (Stress Index Letter Rating = "A")

For the complete report click here.

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