Thursday, March 5, 2009

IRA's Bank Stress Tests

Chris Whalen (via The Big Picture) details his firm's (Institutional Risk Analytics) latest bank stress test results:

Notice the way in which the banking industry has shifted from a skew in favor of “A+” rated bank units at the start of 2006 – those with stress levels below the 1995 benchmark in the Stress Index – to a situation today where the number of “A+” rated banks has been cut in half and over 2,000 bank units now are rated “F”.

Being rated “D” or “F” does not mean that the institution will fail, but it does mean that the bank’ current performance in Q4 2008 was far above the industry’s elevated stress levels and thus the bank get’s a poor grade for this period. Indeed, in many cases institutions with relatively high levels of stress could be excellent value for investors.


As of the fourth quarter, IRA had JP Morgan, Wells Fargo, and Bank of America all at an A rating, while Citi was a resounding F. I wonder what kind of rating Bank of America has these days post-Merril acquisition...

Source: Institutional Risk Analytics