Using Veritas to Construct the "Per…

29-04-2017 Hits:88461 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:82169 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:82056 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:86555 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:82994 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:85119 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:56221 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:84440 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:84155 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:84018 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:90493 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:88068 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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It looks as if a BoomBuatBlogger subscriber has made it into the news with a large option trade - STOCKS NEWS US-Bears flock to PNC Financial put options

PNC Financial Services fell 4.33 percent to $35.79. It reported a steep drop in quarterly earnings, hurt by credit losses and in its options, bears clawed at puts in the November contract, said Andrew Wilkinson, market analyst at Interactive Brokers Group. One player apparently enacted a ratio put spread in a bid to profit to the downside, he said. The Nov $36 strike had 20,000 puts bought for an average premium of $4.08 apiece spread against the sale of 40,000 puts at the Nov $31 strike for $1.97. The cost of the trade was 14 cents and yields maximum potential profits of $4.86 if shares fall to $31 by expiration. He also noted new put action at the Nov $29 strike and the $27.5 strike where 15,000 puts traded.

As subscribers know, we have determined that the overly lenient government stress tests (SCAP) will leave more than one bank requiring an additional capital raise before this credit malaise is all said and done. See The Re-Release of the Open Source Mortgage Default Model and Green Shoots are Being Fertilized by Brown Turds in the Mortgage Markets for our in depth take on loan losses to come for all banks who participated in residential real estate lending. These are the facts, unfiltered by green shoots mantra. PNC's government mandated $600 million capital raise was a joke,plain and simple. They will probably require multiples of that amount due to their National City acquisition and a careful glance at their balance sheet easily supports that assertion.

I have decided to show all a summary of what is arming subscribers to remain bearish against PNC, among other banks. 

Below, please find a comparison bewteen the government's stress test assumptions up to two years out, and our more feasible findings. Remain cognizant that the government's worse case scenarios under the SCAP stress test two years from now have been pierced are on track to be pierced by the end of the quarter - unemployment, residential loan losses, consumer loan losses, etc. The stress tests were invalidated by real world data almost before they were completed. Prudently, it is already time for the banks to undergo another round of more realistically applied stress testing. Actually, the government is allowing banks to repay the TARP and take imprudent amounts of risk heretofore unheard of in regulated bank holding companies, ex. Goldman Sachs and JP Morgan. HMMM! What will it take for us to learn our lesson???

  Gov 2 yr cumulative loss rate range Gov 2 yr cumulative average loss rate for US banks 2 yr cumulative loss rate for PNC
  Base Case Adverse Case Base Case Adverse Case Fed's loss rate assumptions Realistic loss rate assumptions
First Lien Mortgages 5 – 6 7 – 8.5 5.5% 7.8% 8.1% 9.9%
Prime 1.5 – 2.5 3 – 4 2.0% 3.5%    
Alt‐A 7.5 – 9.5 9.5 – 13 8.5% 11.3%    
             
Subprime 15 – 20 21 – 28 17.5% 24.5% 12.7%  Subprime losses not segregated in PNC reporting, Geo losses gross of recoveries est @ 38.7% 
Second/Junior Lien Mortgages 9 – 12 12 – 16 10.5% 14.0%    
Closed‐end Junior Liens 18 – 20 22 – 25 19.0% 23.5%   3.2%
HELOCs 6 – 8 8 – 11 7.0% 9.5%   3.7%
             
C&I Loans 3 – 4 5 – 8 3.5% 6.5% 6.0% 6.1%
             
CRE 5 – 7.5 9 – 12 6.3% 10.5% 11.2% 11.6%
Construction 8 – 12 15 – 18 10.0% 16.5%   21.5%
Multifamily 3.5 – 6.5 10 – 11 5.0% 10.5%   7.3%
Nonfarm, Non‐residential 4 – 5 7 – 9 4.5% 8.0%   6.9%
             
Credit Cards 12 – 17 18 – 20 14.5% 19.0% 22.3% 21.4%
Other Consumer 4 – 6 8 – 12 5.0% 10.0%    
Securities (AFS and HTM)            
             
Others* 2 – 4 4 – 10 3.0% 7.0%   2.5%
Total loan losses           7.3%
             
*including misc commitments and obligations        

 Drawing from data gathered from the FDIC and the NY Fed, we independently calculated the default, charge-off and recovery rates for various loan categories on a geographic, state by state basis. Below, you will find the states where PNC has the highest concentration of loans. Notice how much worse the historical numbers look using the government's own projected data (when not purposely scrubbed to was optimistic) as compared to the loss estimates used in the SCAP stress tests. Keep in mind that we are comparing three month old data with forward looking government projections, all the while acknowledging that we are on a downward sloping curve as it applies to housing prices and upward sloping curve in terms of unemployment. In other words, things are still getting worse, yet the numbers from 3 or 4 months ago already pierce the worst case scenario for up to two years into the future.

Primary geographies of PNC and National City 1Q-08 2Q-08 3Q-08 4Q-08 % change since 20008 Alt-A loss rate Sub prime loss rate
Pennsylvania 2.4% 1.2% -0.4% -0.8% 2.4% 14.3% 33.5%
New Jersey -1.5% -3.2% -4.8% -5.4% -14.1% 23.5% 43.4%
Washington 3.0% 0.5% -2.0% -3.8% -2.4% 11.1% 27.1%
Maryland -1.4% -4.2% -6.3% -7.7% -18.3% 18.8% 38.6%
Virginia -0.3% -2.6% -3.8% -4.6% -10.9% 21.2% 37.3%
Ohio 0.6% -0.3% -2.3% -1.9% -3.9% 15.6% 35.4%
Kentucky 2.8% 3.1% 1.7% 1.0% 8.8% 14.2% 34.7%
Delaware 1.0% -1.2% -2.0% -4.2% -6.3% 16.2% 39.1%
Florida -8.6% -13.0% -16.4% -19.5% -46.5% 37.1% 52.3%
Illinois 0.5% -0.6% -2.6% -3.0% -5.6% 22.9% 41.3%
Indiana 2.3% 1.6% -0.1% -0.5% 3.3% 16.1% 35.2%
Michigan -3.5% -5.2% -7.0% -6.9% -20.8% 22.5% 45.7%
Missouri 1.5% 0.6% -0.3% -0.6% 1.3% 13.4% 36.1%
Wisconsin 1.7% 0.8% -0.9% -0.9% 0.6% 17.8% 41.7%
Average (assuming equal weights) 0.0% -1.6% -3.4% -4.2% -8.9% 18.9% 38.7%
               
Overall U.S -0.2% -1.9% -3.9% -4.5% -10.1%    
               
Price change relative to National Average 0.2% 0.3% 0.5% 0.3% 1.3%    
               
Source: Federal Housing Finance Agency               

Here is a table, fully laid out, illustrating the capital requirements for PNC under variety of scenarios. We are estimating a capital requirement of approximtely $4.1 billion, gross of the $600 million required by the government. There is no wonder why PNC has not repaid the TARP yet. As a matter of fact, no company should have been allowed to repay the TARP until a second, considerably more realistic stress test was applied. In addition, the stress test should be applied on a quarterly or bi-annual basis from now on. 

 Base Case Scenario

Min Tangible Equity Capital Ratio

Capital to be raised ($ mn)

TEC  $ mn
(post add capital )

Tangible Assets
$ mn
(post add cap)

No of shares (mn)

Dilution Impact

2010 estimates

2.1%

0

4,963

237,010

0.0

0.0%

 

3.0%

2,213

7,177

239,223

52.4

11.8%

 

3.5%

3,453

8,416

240,463

81.8

18.4%

 

4.0%

4,705

9,669

241,715

111.5

25.0%

 

4.5%

5,971

10,934

242,981

141.5

31.8%

 

5.0%

7,250

12,213

244,259

171.8

38.6%

 

5.5%

8,542

13,505

245,552

202.4

45.5%

 

6.0%

9,848

14,811

246,858

233.4

52.4%

 

6.5%

11,168

16,132

248,178

264.6

59.4%

 

7.0%

12,502

17,466

249,512

296.3

66.5%

 

 

 

 

 

 

 

Base Case Scenario

Tier one Capital

Capital to be raised ($ mn)

Tier One Capital 2010 $ mn (post add cap)

Risk weighted Assets ($ mn)

No of shares (mn)

Dilution Impact

 

8.0%

0

24,612

237,010

0.0

0.0%

 

9.0%

0

24,612

237,010

0.0

0.0%

 

10.0%

0

24,612

237,010

0.0

0.0%

2010 estimates

10.4%

0

24,612

237,010

0.0

0.0%

 

11.6%

3,259

27,871

240,269

77.2

17.3%

 

12.4%

5,453

30,065

242,463

129.2

29.0%

 

12.8%

6,565

31,178

243,575

155.6

34.9%

The "lite" version of the "real" PNC stress test conducted in May by my staff and I is now available for public download. Notice how prescient it is now, and then, in light of PNC's recent earnings announcement - PNC profit down 87 pct, misses view on bad loans   23 Jul 2009. 

pdf  PNC stress test write up - public lite 2009-07-27 02:37:11 193.21 Kb

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Relevant links:

  • America, You have been outright lied to! Bamboozled! Swindled! Hoodwinked! The Worst Case Scenario
  • Regarding Housing Price Decline, You Ain't Seen Nothing Yet
  • America, You have been outright lied to! Bamboozled! Swindled! Hoodwinked! The Worst Case Scenario,
  • The Real Stress Test Results;
  • and Reggie Middleton Releases More Goldman Sachs Secrets that Tim Geithner Might not Share with You!
  • as well as The Truth About the Banks Has Been Released: the open source spreadhseet edition;
  • Welcome to the Big Bank Bamboozle! and
  • The Re-Release of the Open Source Mortgage Default Model]
  • Tricky Dick Bank Reporting Schemes - What record earnings are you referring to?]
  • § WFC Investment No...
  • § WFC Investment No...
  • § PNC SCAP Results ...
  • § PNC SCAP Results ...
  • § BoomBustBlog.com'...
  • § Small retail bank 1Q09
  • § PNC Simulated Gov...
  • § Sun Trust Banks S...
  • § MS Simulated Gove...