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Surprise! All Banks Pass Stress Test (Except Ally)

Tyler Durden's picture




 

 

In a stunning headline-making moment of clarity, it appears that all the major financials that the Fed monitors (except GMAC Ally) will survive a cataclysmic, Lehman-like moment based on their self-determined analytics of their deeply illiquid off-balance-sheet assets (and a comprehensive understanding of the co-dependence of all those assets). As Bloomberg notes,

  • *TESTS ASSUME HYPOTHETICAL SCENARIOS FOR 9 QTRS ENDING 4Q 2014
  • *FED SAYS 18 BANKS PROJECTED LOSSES WOULD BE $462B UNDER TEST
  • *FED SEES 17 BANKS' TIER 1 COMMON RATIO ABOVE 5% IN WORST CASE
  • *GMAC ALLY ONLY STRESS-TESTED BANK SEEN WITH TIER 1 COMMON BELOW 5%
  • *TESTS SCENARIO ASSUMES EQUITY PRICES DROP MORE THAN 50%
  • *TESTS SCENARIO ASSUMES HOUSING PRICES DECLINE MORE THAN 20%

Is it any wonder that Government Motors wanted to IPO its GMAC/Ally business recently - with a 1.5% stressed Tier 1 ratio.

And another summary table:

And in chart format:

 

and for fun - only $48.4bn total losses from trading and countperty
exposure in a Lehman-like stress event for JPM and Goldman...

PR From The Fed:

The nation's largest bank holding companies have continued to improve their ability to withstand an extremely adverse hypothetical economic scenario and are collectively in a much stronger capital position than before the financial crisis, according to the summary results of bank stress tests announced by the Federal Reserve on Thursday.

 

Reflecting the severity of the stress scenario--which includes a peak unemployment rate of 12.1 percent, a drop in equity prices of more than 50 percent, a decline in housing prices of more than 20 percent, and a sharp market shock for the largest trading firms--projected losses at the 18 bank holding companies would total $462 billion during the nine quarters of the hypothetical stress scenario. The aggregate tier 1 common capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual 11.1 percent in the third quarter of 2012 to 7.7 percent in the fourth quarter of 2014 in the hypothetical stress scenario.

 

The Federal Reserve's stress scenario estimates are the outcome of deliberately stringent and conservative assessments under hypothetical, adverse economic conditions and the results are not forecasts or expected outcomes.

 

Despite the large hypothetical declines, the aggregate post-stress capital ratio exceeds the actual aggregate tier 1 common ratio for the 18 firms of approximately 5.6 percent at the end of 2008, prior to the government stress tests conducted in the midst of the financial crisis in early 2009. This is the third round of stress tests led by the Federal Reserve since the tests in 2009, but is the first year that the Federal Reserve has conducted stress tests pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Federal Reserve's implementing regulations.

 

"The stress tests are a tool to gauge the resiliency of the financial sector," Federal Reserve Governor Daniel K. Tarullo said. "Significant increases in both the quality and quantity of bank capital during the past four years help ensure that banks can continue to lend to consumers and businesses, even in times of economic difficulty."

Full PDF here:

DFAST_2013_results_20130307 by

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Thu, 03/07/2013 - 17:33 | 3310109 TruthInSunshine
TruthInSunshine's picture

LOL 4 the QED

Thu, 03/07/2013 - 17:35 | 3310130 financial apoca...
financial apocalyptic contagion's picture

haha was just explaining to a socialist classmate how these self-reported tests work and this headline made my job much easier

Thu, 03/07/2013 - 17:42 | 3310153 ZerOhead
ZerOhead's picture

*FED SAYS 18 BANKS PROJECTED LOSSES WOULD BE $462B UNDER TEST

This just in...

18 Banks say taxpayer losses are just a little under half a trillion at the moment...

Thu, 03/07/2013 - 17:48 | 3310173 Spider
Spider's picture

I believe all the banks but Ally also passed the "Armageddon scenario", where the oceans blow up, the sky falls, and the Dow Jones drops over 35 points.

Phew - that was close!

Thu, 03/07/2013 - 18:00 | 3310217 hedgeless_horseman
hedgeless_horseman's picture

 

 

Wow!  Look into the magical risk pool...we look great!

 

FASB approves more mark-to-market flexibility


April 02, 2009

Responding to pressure applied by lawmakers on Capitol Hill, the Financial Accounting Standards Board on Thursday voted unanimously to give auditors more flexibility in valuing illiquid mortgage assets that may have long-term value.

Seeking to resolve this situation, FASB's new guidance allows banks and their auditors to use "significant judgment" when valuing the illiquid assets such as mortgage securities.

http://articles.marketwatch.com/2009-04-02/news/30761323_1_fasb-chairman-robert-herz-illiquid-securities-financial-accounting-standards-board

The new guidance, which is expected to boost bank operating profits when they report first quarter results later this month, alters so called mark-to-market rules, which have required banks and other corporations to assign a value to an asset, such as mortgage securities, credit-card debt or student-loan investments, based on the current market price for either the security or a similar asset.

Banks have complained that they have viable assets with strong cash flows that can't be sold because there is no market for them.

 

 

Thu, 03/07/2013 - 18:01 | 3310244 McMolotov
McMolotov's picture

Needs moar Skittle-shittin'!!!

Thu, 03/07/2013 - 19:09 | 3310482 WayBehind
WayBehind's picture

Who cares, we all know those books are cooked anyway ... keep calm and carry on ...

Thu, 03/07/2013 - 19:16 | 3310498 Manthong
Manthong's picture

The one parameter that was not mentioned but implied in establishing the preconditions for the stress scenario was that the letters d, e, f, a, u, l and t are removed from the alphabet.

Thu, 03/07/2013 - 21:06 | 3310783 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Who cares, we all know those books are cooked anyway ... keep calm and carry on ...

...and don't forget that all of the banks, including Ally, received participation trophies.

Thu, 03/07/2013 - 18:02 | 3310246 NotApplicable
NotApplicable's picture

In other news, Chavez is going full-Lenin.

http://apnews.myway.com//article/20130307/DA4SGCCG0.html

Viva La Zombie Chavez!

Thu, 03/07/2013 - 18:29 | 3310372 McMolotov
McMolotov's picture

Will he smell of sulphur or embalming fluid?

Thu, 03/07/2013 - 18:57 | 3310450 Obchelli
Obchelli's picture

But But But

 

How can stocks ever drop 50% when they can not even drop 0.5% intraday?

And housing as tey say is already recovering?

Thu, 03/07/2013 - 19:01 | 3310465 James_Cole
James_Cole's picture

"All Banks Pass Stress Test (Except Ally)"

I thought Friday humour was tomorrow..?

Thu, 03/07/2013 - 18:02 | 3310247 IdiocracyIsAlre...
IdiocracyIsAlreadyHere's picture

That will certainly end well.

Thu, 03/07/2013 - 18:19 | 3310323 TruthInSunshine
TruthInSunshine's picture

No shit. The "new" FASB rules, even better than the old FASB "rules," where banks are about to receive EVEN MORE LUDICROUS leeway to mark their assets to unicornium-valuations:

 

Proposal Gives Banks More Freedom to Value Assets

Published: February 14, 2013

The board that sets American accounting rules moved on Wednesday to substantially reduce the use of market values in financial statements. The move, if adopted, would give banks more freedom to value financial assets as they deem appropriate.

 

Long live the Ponzi. Pass the HorseMcNuggets & Escolar tartare.

 

Thu, 03/07/2013 - 18:35 | 3310392 Rainman
Rainman's picture

I'm shocked that the noble profession of public accounting has been criminalized !!

Thu, 03/07/2013 - 21:03 | 3310773 TheFourthStooge-ing
TheFourthStooge-ing's picture

FASB: Fuck America, Serve Banks

Thu, 03/07/2013 - 19:04 | 3310474 SnobGobbler
SnobGobbler's picture

so those crap MBS the fed is buying can be priced higher ya knowr; pretty fuckin' slick way to provide more (i)liquidity by my estimates. sounds like a "shitty deal" for us slaves.

Thu, 03/07/2013 - 18:00 | 3310238 I am more equal...
I am more equal than others's picture

I call BULLSHIT!

Commercial real estate is overvalued by a factor of two to five because they've used whores like Cushman Wakefield and CBRE who have the analytical ability Bernake.  I've seen nothing but nonsensical crap come from these girls in red.  Will overvalue (blow you) for a fee.

Thu, 03/07/2013 - 17:47 | 3310181 francis_sawyer
francis_sawyer's picture

I'll label this as the 'ekm' moment

~~~

ht ~ Minsky

Thu, 03/07/2013 - 17:50 | 3310197 ParkAveFlasher
ParkAveFlasher's picture

Electrolytes.  It's what banks crave.

Thu, 03/07/2013 - 17:56 | 3310223 SemperFord
SemperFord's picture

Yup yup, Idiocracy in America is not decades ahead, it's already here because 99.99% percent of Americans, don't understand, don't know and don't care!

Thu, 03/07/2013 - 18:16 | 3310309 francis_sawyer
francis_sawyer's picture

I CARE!... but that's prolly why I have no friends & even my family hates me...

Thu, 03/07/2013 - 21:09 | 3310763 CPL
CPL's picture

Rest easy , like last time they all DIE underground.

 

All of them.  Time for a reset.  Goodbye to bad trash.  I'm now looking at alphabet agencies because of askance...they best check in.  Or they get their children hunting. 

 

you all have some juice to use otherwise to illustrate 'place'.  Mind and will.  Use it monkey's.

Thu, 03/07/2013 - 17:39 | 3310147 McMolotov
McMolotov's picture

I view these stress tests as similar to the pump that's been taking place in the market. If they can't coerce people to dump money into stocks by constantly propping up the market, they want them to be reassured that the banks are a completely "safe" place to store what meager savings they have, and they accomplish that task by having "stress tests" that the banks pass with flying colors.

None of this does a thing to instill confidence in me.

Thu, 03/07/2013 - 18:42 | 3310410 chunga
chunga's picture

Yeah.

Banks "pass" but they're stressing the shit out of everyone else.

Thu, 03/07/2013 - 18:33 | 3310385 johngaltfla
johngaltfla's picture

There is not enough bullshit spray for this test.

 

 

Thu, 03/07/2013 - 17:34 | 3310114 lolmao500
lolmao500's picture

TEST SCENARIO doesn't include MARGIN CALL OF SEVERAL BILLIONS ON THEIR CDS if a major bank goes under...

Thu, 03/07/2013 - 17:50 | 3310193 NotApplicable
NotApplicable's picture

Nobody gets called on CDSes, just ask AIG!

Thu, 03/07/2013 - 18:46 | 3310418 GolfHatesMe
GolfHatesMe's picture

Just let the DTCC figure it out for you

Thu, 03/07/2013 - 18:45 | 3310417 GolfHatesMe
GolfHatesMe's picture

D used to mean Default

Thu, 03/07/2013 - 17:33 | 3310115 max2205
max2205's picture

Ben Almighty...what say thee

Thu, 03/07/2013 - 17:35 | 3310123 Confundido
Confundido's picture

Can we end the Fed then? What do we need a lender of last resort for? Or is it the lender of first resort? I am.... confundido!

Thu, 03/07/2013 - 17:35 | 3310126 SheepDog-One
SheepDog-One's picture

OH so on top of this weeks near 40 S&P points added, we'll get another 15 tomorrow, throwing in the certain full-retard jobs# blowout festival first thing in the morning!

Thu, 03/07/2013 - 17:38 | 3310142 Mark123
Mark123's picture

The whisper number is 170 million new jobs added (based on seasonal adjustment since we know that 170 million were lost due to sequester).

Thu, 03/07/2013 - 17:44 | 3310157 SheepDog-One
SheepDog-One's picture

Muh-muh-muh-muh BRAIN'S not too gu gu gu gud.....

Simple Jack (2009) Full Extended Trailer - Official/High Quality - YouTube

Thu, 03/07/2013 - 17:45 | 3310172 McMolotov
McMolotov's picture

The collective IQ of this country will shoot up 170 points once Maxine Waters kicks the bucket.

Thu, 03/07/2013 - 17:36 | 3310127 Fiat Burner
Fiat Burner's picture

They must have forgotten the test for rise in interest rates.

Thu, 03/07/2013 - 17:52 | 3310203 NotApplicable
NotApplicable's picture

Well, that would just be plain dumb. That's a market phenomenon.

Everybody knows the market is dead, dead, dead.

Thu, 03/07/2013 - 17:36 | 3310131 monopoly
monopoly's picture

Thank God, I was worried there would be a problem if markets crashed. Feel much better now. So lets see, should I buy BAC or C....or both.

What a fucking circus we got ourselves into. Beyond words.

Thu, 03/07/2013 - 17:36 | 3310132 Mark123
Mark123's picture

Um, why do we need stress tests any more, now that the Fed can print unlimited money and give to banks?

 

Oh, right, I forgot that this is just a trigger for stock pumping whores of wall streets back room operations.

Thu, 03/07/2013 - 17:36 | 3310133 Confundido
Confundido's picture

Assumption: US Treasury holdings have a 0% risk weight.

Thu, 03/07/2013 - 17:37 | 3310137 SheepDog-One
SheepDog-One's picture

50% equity drop, 20% housing value decline, and banks STILL pass with flying carpets! WOW they're all teflon coated titanuim banks truly!

Thu, 03/07/2013 - 17:52 | 3310202 edb5s
edb5s's picture

Nice TPB reference, +1

Thu, 03/07/2013 - 21:14 | 3310800 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

50% equity drop, 20% housing value decline, and banks STILL pass with flying carpets! WOW they're all teflon coated titanuim banks truly!

...and they've Got What Plants Crave. They've Got Tungsten!

Thu, 03/07/2013 - 17:37 | 3310139 PAWNMAN
PAWNMAN's picture

Unusual that a privately held bank, with a majority of international shareholders, would be in charge of administering a stress test of U.S. banks. Amazing that this body grew to such a high level of influence. More like criminal.

Thu, 03/07/2013 - 17:39 | 3310145 ZippyBananaPants
ZippyBananaPants's picture

If they would have gave that kid a fucking ice cream cone maybe they would have passed.

Thu, 03/07/2013 - 17:39 | 3310151 Racer
Racer's picture
  • *TESTS SCENARIO ASSUMES EQUITY PRICES DROP MORE THAN 50%
  • *TESTS SCENARIO ASSUMES HOUSING PRICES DECLINE MORE THAN 20%

That is the official line.. the reality is

  • *TESTS SCENARIO ASSUMES EQUITY PRICES DROP MORE THAN 0.50%
  • *TESTS SCENARIO ASSUMES HOUSING PRICES DECLINE MORE THAN 0.20%

 

Thu, 03/07/2013 - 17:41 | 3310156 infinity8
infinity8's picture

"Ally" - gawd I laughed so hard when I first heard that name-change. This depression does have it's amusing moments.

Thu, 03/07/2013 - 17:49 | 3310191 SheepDog-One
SheepDog-One's picture

'Ally' name must have focus-grouped well....or it's an anagram for 'Ya'll be footin the bill'

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