As I anticipated, Wells Fargo fails the stress test under all the three active scenarios (base case, optimistic and pessimistic scenarios) by a significant degree and will have to raise capital in order to achieve a Tangible Common Equity (TCE) ratio of 4.0%. The bank's TCE ratio stands at 3.06% which is significantly lower than the prescribed limit of 4.0%. Further, based on our projections, the bank's TCE will likely fall to 2.37% at the end of 2010 after adjusting for losses (both accounting as well as economic losses on account of its significant off-balance sheet exposure towards the QSPE's and SIV's) worth US$64 billion. In the base case scenario, to bring the TCE up to 4%, the bank would require to raise US$23.5 billion. Furthermore, in the pessimistic and optimistic cases, the bank must raise US$23.9 billion and US$22.8 billion respectively. 

Additionally, the bank's Tier 1 Capital stood at 8.28% as of March 31, 2009, which is marginally above the prescribed limit of 8%. However, due to significant off-balance sheet exposure of US$1.8 trillion as of December 31, 2008 and the risk associated with it, the bank Tier 1 capital will likely fall to 7.59% at the end of 2010 and WFC will have to raise significant capital to sustain the loan and lease losses and losses pertaining to off-balance exposure. According to our estimates, in the base case scenario, the bank would have to raise US$5.08 billion. In the pessimistic and optimistic cases, the bank would need to raise US$5.6 billion and US$4.3 billion respectively. Moreover, the deeper recessionary threat necessitates the bank to maintain higher capital. Depending on the asset quality of Wells, we have pegged the Tier 1 Capital to 9% instead of prescribed 8%. As per this measure, the bank would require to raise US$17.6 billion in the base case scenario.  WFC is actually up $1.74 as I type this, 10:41 am EST.

Note: Since leaks are starting to come out, I'll release my findings for the rest. Goldman and American Express can, according to my calculations, clear the 4% TCE hurdle without raising extra capital. I will not have the time to run JP Morgan, but I would not be shocked if it was found that they wouldn't be found to need more.

As I anticipated, Wells Fargo fails the stress test under all the three active scenarios (base case, optimistic and pessimistic scenarios) by a significant degree and will have to raise capital in order to achieve a Tangible Common Equity (TCE) ratio of 4.0%. The bank's TCE ratio stands at 3.06% which is significantly lower than the prescribed limit of 4.0%. Further, based on our projections, the bank's TCE will likely fall to 2.37% at the end of 2010 after adjusting for losses (both accounting as well as economic losses on account of its significant off-balance sheet exposure towards the QSPE's and SIV's) worth US$64 billion. In the base case scenario, to bring the TCE up to 4%, the bank would require to raise US$23.5 billion. Furthermore, in the pessimistic and optimistic cases, the bank must raise US$23.9 billion and US$22.8 billion respectively. 

Additionally, the bank's Tier 1 Capital stood at 8.28% as of March 31, 2009, which is marginally above the prescribed limit of 8%. However, due to significant off-balance sheet exposure of US$1.8 trillion as of December 31, 2008 and the risk associated with it, the bank Tier 1 capital will likely fall to 7.59% at the end of 2010 and WFC will have to raise significant capital to sustain the loan and lease losses and losses pertaining to off-balance exposure. According to our estimates, in the base case scenario, the bank would have to raise US$5.08 billion. In the pessimistic and optimistic cases, the bank would need to raise US$5.6 billion and US$4.3 billion respectively. Moreover, the deeper recessionary threat necessitates the bank to maintain higher capital. Depending on the asset quality of Wells, we have pegged the Tier 1 Capital to 9% instead of prescribed 8%. As per this measure, the bank would require to raise US$17.6 billion in the base case scenario.  WFC is actually up $1.74 as I type this, 10:41 am EST.

Note: Since leaks are starting to come out, I'll release my findings for the rest. Goldman and American Express can, according to my calculations, clear the 4% TCE hurdle without raising extra capital. I will not have the time to run JP Morgan, but I would not be shocked if it was found that they wouldn't be found to need more.

The reinsurer analysis recently reported results in line with that forecasted in my analysis. The shares have been, nonetheless, driven by this recent bear market rally, as has the shares of HIG. I have released a rash of HIG research warning subscribers of the trouble they are in, and it seems the industry in general and particularly those that have sold variable annuities will have problems for the foreseeable future.

From Bloomberg: Hartford Financial Reports Third Straight Loss Amid Equity-Market Slump 

April 30 (Bloomberg) -- Hartford Financial Services Group Inc., the Connecticut-based insurer, had its third straight quarterly loss as the stock-market slump raised the cost of protecting customers from declines in retirement accounts.

The first-quarter net loss was $1.21 billion, or $3.77 a share, compared with profit of $145 million, or 46 cents, in the year-earlier period, the company said today in a statement distributed by Business Wire.

Hartford’s earnings shrank, then disappeared amid the six- quarter drop in the Standard & Poor’s 500 Index as the company shouldered declines for savers with equity-linked variable annuities. That depleted capital at the life insurance division, and Chief Executive Officer Ramani Ayer, who also oversees a profitable property-casualty unit, is under pressure to stanch the losses or break up the 199-year-old insurer.

The reinsurer analysis recently reported results in line with that forecasted in my analysis. The shares have been, nonetheless, driven by this recent bear market rally, as has the shares of HIG. I have released a rash of HIG research warning subscribers of the trouble they are in, and it seems the industry in general and particularly those that have sold variable annuities will have problems for the foreseeable future.

From Bloomberg: Hartford Financial Reports Third Straight Loss Amid Equity-Market Slump 

April 30 (Bloomberg) -- Hartford Financial Services Group Inc., the Connecticut-based insurer, had its third straight quarterly loss as the stock-market slump raised the cost of protecting customers from declines in retirement accounts.

The first-quarter net loss was $1.21 billion, or $3.77 a share, compared with profit of $145 million, or 46 cents, in the year-earlier period, the company said today in a statement distributed by Business Wire.

Hartford’s earnings shrank, then disappeared amid the six- quarter drop in the Standard & Poor’s 500 Index as the company shouldered declines for savers with equity-linked variable annuities. That depleted capital at the life insurance division, and Chief Executive Officer Ramani Ayer, who also oversees a profitable property-casualty unit, is under pressure to stanch the losses or break up the 199-year-old insurer.

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