Using Veritas to Construct the "Per…

29-04-2017 Hits:82049 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:77699 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:77269 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:82016 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:78603 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:80903 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:47782 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:79605 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:79135 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:79681 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:84639 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:81606 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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reggie_middleton_flying_swords_to_behead_the_financial_villains.jpgBelieve it or not, the TRUTH can and will set you free - or get you locked up. I guess it all really depends on the perspective. You don't necessarily need swords and daggers to cut to the truth. I normarly use spreadsheets and forensic analysis, although every now and then a Katana or two doesn't hurt.  

Extensive Simulated Government Stress Tests Released!

I'm putting some more truth out today. Here is the first of a series of the government simulated stress tests that we have completed. This is normally high level subscriber-only material, but since these tests are so widely anticipated, I thought I would give the world a taste of what we do behind closed doors.

Be aware that I don't necessarily agree with the methodology and assumptions of the government's version of the stress test. For one, they don't risk weight earnings, only assets. Some of the investment banking operations take significant risks to generate earnings (see "Goldman Sachs Banking Secrets Mr. Geithner May Not Share With You! ), and these actions pose significant risk. In addition, I believe that the "stated" assumptions are much too lax to be considered a rigorous stress test, eg. unemployment is already higher than the baseline assumed unemployment. I do not know if the government modified its assumptions in the actual implementation of its tests. I have rectified the problem by creating a scenario analysis that covers multiple assumptions, thus the readers can decide for themselves which set of assumptions to use.

I stress, evaluate and value companies differently, thus my internal forensic analysis may very well bear different results than these government simulations. That being said, these are simulations and not necessarily an attempt at getting to the truth, the whole truth and nothing but the truth - just the government's version of the truth. Do you remember what Jack Nicholson told Tom Cruise when he asked for the truth in "A Few Good Men"? He said, "The TRUTH! The TRUTH! You can't handle the TRUTH!!!!". Well, in my opinion ladies and gentlemen, the TRUTH is that quite a few of the banks that are the subjects of my analysis are insolvent. That's just my opinion, but I actually believe that my opinion is money good.

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.png
 sun_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

     
               

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
(post add capital )

Tangible Assets
$ mn
(post add cap)

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: Sun Trust Banks Simulated Government Stress Test 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:

  1. 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".
  2. 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])
  3. 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)
  4. 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!)
  5. 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.