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The Sun Trust Bank Stress Test Results
The following is a summary of my simulated government stress tests based upon the white paper released in the latter part of April 2009. See The Supervisory Capital Assessment Program: Design and Implementation 2009-04-30 02:16:44 286.90 Kb and Bank of Finland Recessionary Stress Testing Methodology 2009-04-30 02:18:39 306.64 Kb for methodology. For my personal accounts, I am assuming a 4% bar for Tangible Common Equity and a 6% bar for Tier One Capital. The actual bars have not been released publicly, to my knowledge. It has been stated in the media and dated government documents that the base case government estimates for unemployment was 8.4%. We believe that to be unrealistic (given that the latest government figures show 8.5% unemployment and trending upwards), hence we have used the more stringent RGE Monitor macro assumptions for the base case scenario and have reserved what we perceive as the government's stated parameters as the optimistic scenario.
| Click any chart to enlarge |
 sun_trust_tangible_equity_ratio.pngsun_trust_tangible_equity_ratio.png |
 sun_trust_tier_1_ration.gifsun_trust_tier_1_ration.gif |
Please be aware that this is an illustrative analysis only, and we are not privy to the same access and information that may have went into the government's analysis of these companies. In addition, the government may have wavered from the stated implementation in the whitepaper released above.
The Scenario Analysis Summary for Sun Trust
|
2010 End |
Base Case |
Adverse case |
Optimistic case |
||||
|
Risk weighted Assets |
152,937 |
150,791 |
155,063 |
||||
|
Tier 1 risk-based capital |
13,653 |
12,358 |
14,959 |
||||
|
Tangible Assets |
165,245 |
162,825 |
167,642 |
||||
|
Tangible Equity |
5,121 |
3,826 |
6,427 |
||||
|
Tier One Capital |
8.9% |
8.2% |
9.6% |
||||
|
TEC |
3.10% |
2.35% |
3.83% |
||||
|
Sun Trust Share price |
13.71 |
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Assuming the government requires a 4% minimum tangible equity capital ratio, we foresee Sun Trust being in need of roughly $1.5 billion of additional capital causing approximately 31.7% in dilution among existing equity investors. Base Case Scenario Min Tangible Equity Capital Ratio Capital to be raised ($ mn) TEC $ mn Tangible Assets No of shares (mn) Dilution Impact 2010 estimates 3.1% 0 5,121 165,245 0.0 0.0% 3.5% 687 5,808 165,931 50.1 14.0% 4.0% 1,551 6,672 166,796 113.1 31.7% 4.5% 2,424 7,545 167,669 176.8 49.6% 5.0% 3,307 8,428 168,551 241.2 67.6% 5.5% 4,198 9,319 169,443 306.2 85.9% 6.0% 5,100 10,221 170,345 372.0 104.3% 6.5% 6,011 11,132 171,255 438.4 122.9% 7.0% 6,931 12,052 172,176 505.6 141.7% I have made the full 36 page report available for all to download here:
(post add capital )
$ mn
(post add cap)
Sun Trust Banks Simulated Government Stress Test 2009-05-04 13:38:04 1019.01 Kb. I plan to publicly release stress tests on American Express, PNC Bank, Morgan Stanley, Goldman Sachs and Wells Fargo before the government releases their results Thursday. Stay tuned...
For those who do not know or follow me, I have a strong track record in calling this credit crisis:
- The Commercial Real Estate Implosion: I called it in 2007 - "GGP has finally filed Bankruptcy, Proving My Analysis to be On Point Over the Course of 18 Months".
- The Investment Bank Implosions: Bear Stearns (Is this the Breaking of the Bear? [Sunday, 27 January 2008]) - and - Lehman Brothers investment banking/CRE implosion connection (Is Lehman really a lemming in disguise? [Thursday, 21 February 2008])
- The Mortgage Banking Implosion: I called it in 2004, publicly on the blog in 2007 - Countrywide and Washington Mutual (Yeah, Countrywide is pretty bad, but it ain’t the only one at the subprime party… Comparing Countrywide with its peer)
- The Regional Bank Implosion: Spring of 2008 - nearly all of the failed or failing regional banks of significant size (As I see it, these 32 banks and thrifts are in deep doo-doo!)
- The Monoline Implosion: 2007-2008 - MBIA (A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton) and Ambac (Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion Market Cap and Follow up to the Ambac Analysis), among others including the residential homebuilders and their abuse of off balance sheet JVs - well in advance.
