The truth is finally out. The government finally put out its results, and as expected they are not very good for everyone.
So which banks are doing well and which ones are not?
It is clear after this test that the bigger banks are hurting and will desperately need to raise capital. Based on the data provided, Bank of America, Wells Fargo and CITI are clearly showing need for more capital. Needing the most out of the entire group.
On the opposite side of the scale, you will find banks such as BB&T, JP Morgan Chase and Capital One. These banks seem to need no additional capital and are doing well overall.
In order to be fair, there have been many elements to the test that are not openly discussed on the internet. The test was looking for total assets, market value, worst case scenario, and capital needed.
Lets break down some of the results and what they mean:
Bank of America: By far the largest bank in the US, Bank of America needs to raise the most capital and has the worst case scenario by far. The need for capital is not an issue as the dollar amount needed is a very small percentage of the total asset value of the company, so its irrelevant but the worst case scenario is quite scary. Bank of America seems to be worth 10% market value of its asset size which means that people have lost faith in Bank of America entirely. The value is down and its worst case scenario is not looking good either and could create a huge problem for our economy if it fails and is taken over by FDIC.
Wells Fargo: Despite the need for more capital, Wells Fargo seems to be in a bad situation according to the data from the stress test, they are also a huge concern based on their worst case scenario collapse. Their capital need is of no concern due to the size of their assets and is no more than 10% which really is nothing to bank this large. On the other end, things are different from Bank of America as they do not share a market value that is 10% of the assets. They are weak but simply because of the amount of capital lost from the merger with Wachovia.
CITI Bank: Our friends at CITI are in danger, and they are in just about every way. There is nothing to say about CITI that can make them look good. Their worst case scenario is a disaster, their capital is short, and their concept is simply broken. There are many reasons why I believe that CITI will not be nationalized anytime soon but they should be.
Lets discuss the good guys.
BB&T: Despite doing well in this recession, BB&T is a lost bank in my eyes. They do not capitalize on anything at any time, and continue to remain conservative to levels that negatively impact the communities they serve. Their core model did keep them from being on the bad list and need no additional capital, so it works to some extent and saved them this time.
Capital One: Capital One banking was recently introduced in the US, as this major credit based company is moving into the retail side fast, and seizing the bad times to get in cheap. Their great credit model kept them from needing additional capital. This came as no surprise as their retail presence was very limited during sub-prime lending years and therefore saved them a bit of hassle. They have acquired many regional banks recently such as Chevy Chase Bank and will need to be monitored quickly.
JP Morgan Chase: Here is a bank that truly understands business. JP Morgan Chase is in my opinion the best credit bank to date. Its approach is conservative and yet convenient to its qualified customers. They tailor special products that are low risk for high risk clients, but they create opportunities for themselves with all credit segments. They offer banking on a limited basis and in major cities only.
