Stress Tests Confirm: Banking System Was Never Headed Over a Cliff

It's said that exercise relieves stress, but that nothing relieves the exercise.

It's no surprise that Treasury secretary Geithner finds virtue in his stress test folly, that he trumpets that the results "lift the fog of uncertainty"--even though that fog is entirely a miasma of his own making. We should note the ad hoc, on-the-fly changes to long-standing regulatory capital ratios and practice, unprecedented in the modern age. We should lament the politicization of the regulatory process and lasting damage that has likely resulted. Where is the confidence in our capital markets? And with the manifest panic, mistakes, and shortcomings of our regulators and monetary authorities, why grant their demand that we place our confidence in them?

As to stress test results, it's noteworthy that of the $63 billion total capital "shortfall" (I'm excluding GMAC's $11.5 billion as a special case), Bank of America (BAC) ($34 billion) and Wells Fargo (WFC) ($14 billion) account for 79%. And these two likely rank as the strongest earnings generators of the group, and are presumably best-positioned to raise additional common equity, as well. (Wells has already raised $6 billion in new common equity at a hefty $22 per share.) In short order, I expect that Bank of America will successfully do the same—and confound the doomsayers in the process.

And the clearest winners? U.S Bancorp (USB), one of the best-managed and -led financial institutions in the country, in my opinion. Also JPMorgan (JPM), American Express (AXP), BB&T (BBT), State Street (STT), CapitalOne (COF), and Bank of New York Mellon (BK). And the insurer MetLife (MET).

After the stress test, what's most evident is how manageable our problems are--if the banks do their jobs, as they clearly are--and if Feds get out of the way.

Comments

[apppro:]

Basically what I've been screaming since the summer of '07 when all this started.
But again you missed the point of who and what caused all of this so-called crisis! The story still all goes back to:
1. Shorts lobbied SEC to get rid of Uptick Rule.
2. Shorts Lobbied FASB to institute M2M.
3. Shorts contrived disastor scenarios for the monolines and then the banks that would not or even could not ever happen.
4. AND, we ALL bought into it!!!!!!!!!!!!

May 10 07:14 AM

[Jasper M:]

?!?
Author notes the screwiness of the test, then uses the results?
I admit there are some serious winners. BUT the conditions were so lenient compared to what is coming that I think there is hardly grounds for an "all clear" on the industry.
I am short, or buying puts, on a lot of these, as I think the euphoria over the results (and so many others!) is Way overdone.

May 10 08:24 AM

[Paul_L:]

Geithner annouced stress test 2/9 and market went off the cliff and dropped to the lowest in early March. Market has gone back to about when he annouced the stress test. Funny how the system works and we are thankful to Geithner. A teacher gave a test to students asked how they would like to be graded and compromised on the final grade.

May 10 01:22 PM

[Econ 101:]

apppro-
You are on the right track, just dont go back far enough. It starts with congress and the community redevleopment act (CRA). The current show is just bread and circuses for the public. With a one party political system there is no way out of our plight. We must strike at the heart of the monster, the FED. It is at the heart of the conspirisy to bring down our Republic.

We are ruled by an oloigarchy of banks led by the Fed. The current administration is trying to bring down that oloigarchy and install itself as a replacemrent. The people behind the administration are former SDS weathermen who have studied Mao for 30 years and are acting to CHANGE the republic.

Oloigarchys are most often followed by dictatorships.

May 10 05:03 PM

[apppro:]

Econ 101,

A little drastic don't u think? I'm not advocating the overthrow of our entire system, just put back a few regulations and institute some common sense when it comes to stopping "The Shorting of America".
Hey, if you want to go back to the start we might as well go back to the guy who wanted compensation for inventing the wheel.


On May 10 05:03 PM Econ 101 wrote:

> apppro-
> You are on the right track, just dont go back far enough. It starts
> with congress and the community redevleopment act (seekingalpha.com/symbo...).
> The current show is just bread and circuses for the public. With
> a one party political system there is no way out of our plight. We
> must strike at the heart of the monster, the FED. It is at the heart
> of the conspirisy to bring down our Republic.
>
> We are ruled by an oloigarchy of banks led by the Fed. The current
> administration is trying to bring down that oloigarchy and install
> itself as a replacemrent. The people behind the administration are
> former SDS weathermen who have studied Mao for 30 years and are acting
> to CHANGE the republic.
>
> Oloigarchys are most often followed by dictatorships.

May 10 05:58 PM

[barfbag:]

Banking System Was Never Headed Over a Cliff!
Sure, now that the government is guaranteeing all kind of toxic assets. Had there been no intervention you'd be unemployed like you deserve to be, and the banks you claim were never really doing so bad would already have been liquidated. Considering the lack of gratitude (towards the government and the taxpayers) of the banks and their lackeys (like you) we should have left them go down (and thrown their employees in jail), never mind if our 401Ks would have lost 95% instead of just 45%.

May 11 07:57 AM

[barfbag:]

So it was all because of the shorts, not because every bank in the world was over-loaded with crap and over-leveraged.
I guess if I am a boxer and drop my guard and get knocked out, my opponent is to blame because he punched me while I was daydreaming.
Sure the Internet is great, everybody can share their bits of ideological dictated junk with the rest of us. All I hear is generic and uninformed ranting that shows no knowledge or memory of the recent past. Whoever lives in an imaginary world should also have to vote in an imaginary world.


On May 10 07:14 AM apppro wrote:

> Basically what I've been screaming since the summer of '07 when all
> this started.
> But again you missed the point of who and what caused all of this
> so-called crisis! The story still all goes back to:
> 1. Shorts lobbied SEC to get rid of Uptick Rule.
> 2. Shorts Lobbied FASB to institute M2M.
> 3. Shorts contrived disastor scenarios for the monolines and then
> the banks that would not or even could not ever happen.
> 4. AND, we ALL bought into it!!!!!!!!!!!!

May 11 08:11 AM

[Econ 101:]

Appro,
Maybe. But all great truths begin as blasphemy

I admit to being depressed and worried about the diirection of America. I am just comming to terms with the realization that our leaders and ourselves have been myopic and oblivious to the real world for a long time. I am not advocating the overthrow of anything, I would prefer to keep it as it was before the rise of China and Islam. I just dont think it can happen and we need to prepare for the Brave New World...

May 11 06:06 PM