Using Veritas to Construct the "Per…

29-04-2017 Hits:85763 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:79995 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:79856 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:84334 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:80876 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:83123 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:54131 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:82255 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:82109 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:81978 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:87999 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:85876 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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I am now releasing the additional calculated capital requirements for several banks, with the full set of calculations available for download for free registered users. I am releasing my proprietary work to demonstrate to those who do not currently subscribe to BoomBustBlog the depth and breadth of this site's capabilities. 

The Methodology Used 

As stated in my original release of the Sun Trust Stress Test Analysis, 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 systemic risk. In addition, the bar is too low to be considered truly stressful (eg. 8.4% average unemployment as a base case in an 8.5% unemployment environment, trending upwards). I have rectified the problem of floating government targets and expectations by creating a scenario analysis that covers multiple assumptions, thus the readers can decide for themselves which set of assumptions to use in order to arrive at what they feel would be the government's (or the most realistic) conclusion.

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%. As previously mentioned, 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.

Please be aware that these are illustrative analyses 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. All in all, I believe this to be a fairly accurate representation of what one could expect from the government in the upcoming days. 

The Scenario Analysis Summary for PNC Bank

Capital to be Raised

Assuming the government requires a 4% minimum tangible equity capital ratio, we foresee PNC being in need of roughly $3.25 billion of additional capital causing approximately 18% in dilution among existing equity investors as of the closing price of the 1st of this month.

 

 

2010 End

base case - rge monitor

Adverse case

Optimistic case

   
           

Risk weighted Assets

260,878

257,111

266,758

   

Tier 1 risk-based capital

27,948

27,125

28,802

   
           

Tangible Assets

285,435

281,138

292,144

   

Tangible Equity

8,299

7,476

9,153

   
           

Tier One Capital

10.7%

10.6%

10.8%

   

TEC

2.91%

2.66%

3.13%

   

PNC Share price

40.45

       
             

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

2.9%

0

8,299

285,435

0.0

0.0%

 

3.0%

272

8,571

285,708

6.7

1.5%

 

3.5%

1,753

10,052

287,188

43.3

9.7%

 

4.0%

3,249

11,547

288,684

80.3

18.0%

 

4.5%

4,760

13,059

290,195

117.7

26.4%

 

5.0%

6,287

14,586

291,723

155.4

34.9%

 

5.5%

7,831

16,130

293,266

193.6

43.5%

 

6.0%

9,391

17,690

294,826

232.2

52.2%

 

6.5%

10,967

19,266

296,403

271.1

60.9%

 

7.0%

12,561

20,860

297,996

310.5

69.8%

Download the full analysis (as a registered user) here: PNC Simulated Government Stress Test PNC Simulated Government Stress Test 2009-05-05 02:00:10 1.12 Mb

The Scenario Analysis Summary for Morgan Stanley

Assuming the government requires a 4% minimum tangible equity capital ratio, we foresee Morgan Stanley not being in need of additional capital as of the closing price of the first of this month. 

 

2010 End

Base case

Base Case

Adverse case

Optimistic case

   
             

Risk weighted Assets

280,233

280,233

270,716

292,711

   

Tier 1 risk-based capital

40,374

40,374

37,110

43,846

   
             

Tangible Assets

659,107

659,107

636,618

688,597

   

Tangible Equity

28,965

28,965

25,701

32,437

   
             

Tier One Capital

14.4%

14.4%

13.7%

15.0%

   

TEC

4.39%

4.39%

4.04%

4.71%

   

MS Share price

23.07

         
             

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

4.4%

0

28,965

659,107

0.0

0.0%

 

4.5%

728

29,693

659,835

31.5

2.9%

 

5.0%

4,201

33,165

663,308

182.1

16.8%

 

5.5%

7,710

36,675

666,817

334.2

30.9%

 

6.0%

11,257

40,222

670,364

488.0

45.1%

 

6.5%

14,842

43,807

673,949

643.3

59.5%

 

7.0%

18,465

47,430

677,572

800.4

74.0%

Download the full analysis (as a registered user) here: MS Simulated Government Stress Test MS Simulated Government Stress Test 2009-05-05 02:17:35 2.49 Mb


The Scenario Analysis Summary for Sun Trust Bank

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, as of the closing price of the first of this month.

 

 

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

     
               


             

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 will follow up with Stress Tests for Goldman Sachs and American Express tomorrow. 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. 
I suggest everybody read up on how we got here. I started taking defensive action in 2004, and implemented my offensive actions 2007 - right around the time this blog was started. Read my blog by blow analysis... 

Recommended Reading - The Asset Securitization Crisis: 

  1.   Intro: The great housing bull run - creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble - A comparison with the same during the S&L crisis
  2.   Securitization - dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble - declining home prices and rising foreclosure
  3.   Counterparty risk analyses - counter-party failure will open up another Pandora's box (must read for anyone who is not a CDS specialist)
  4.   The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue 
  5.    Municipal bond market and the securitization crisis - part I
  6.    Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)
  7.    An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two
  8.    Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
  9.   More on the banking backdrop, we've never had so many loans!
  10.   As I see it, these 32 banks and thrifts are in deep doo-doo!
  11.   A little more on HELOCs, 2nd lien loans and rose colored glasses
  12.   Will Countywide cause the next shoe to drop?
  13.   Capital, Leverage and Loss in the Banking System
  14.   Doo-Doo bank drill down, part 1 - Wells Fargo
  15.   Doo-Doo Bank 32 drill down: Part 2 - Popular
  16.    Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank
  17.   The Anatomy of a Sick Bank!
  18.   Doo Doo Bank 32 Drill Down 1.5: Wells Fargo Bank
  19.   GE: The Uber Bank???
  20.   Sun Trust Forensic Analysis
  21.   Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street
  22.   Goldman Sachs Forensic Analysis
  23.   American Express: When the best of the best start with the shenanigans, what does that mean for the rest..
  24.   Part one of three of my opinion of HSBC and the macro factors affecting it
  25.   The Big Bank Bust
  26. Continued Deterioration in Global Lending, Government Intervention in Free Markets
  27. The Butterfly is released!
  28. Global Recession - an economic reality
  29. The Banking Backdrop for 2009
  30. Reggie Middleton on the Irish Macro Outlook

 

Recommended Global Macro Reading from Guest Contributors:

  1. Debt - Thoughts On A Global Problem (Part 1),
  2. Banking out of Control (Part 2)
  3. Global Debt Stats (Part 3)