Informal stress tests given to more banks - Business First of Columbus:

uraa-quartely.blogspot.com
Those ramifications so far have includexd wild fluctuations in the prices of bank a growing expectation that regulators will apply the stresxs test methodology tomore banks, and a flurry of do-it-yourselfd stress tests performed by bankinyg analysts that have yielded ugly results for some institutions. “Wha we’ve got to figure will get undefr way, if it’s not already undeer way, is an equivalent test for the next 20 to 30largestg banks,” said Jeff Davis, director of research at the Chicago investmenyt bank The tests made public the potentiall capital shortfalls of many of the biggest banks, and also solidified concerns of many analysts about a host of smallere ones.
One of the first things to happen followingh the release of the testresults – which outline the level of losses expected at banks if the economy declinedc further – was an evaluation by stock analysts of banke not tested by the government. was prominent on many of those lists as one that will needfurthefr capital, although how much varied widely depending on the analysts’ approach. “Wse know that Huntington would be an obvious one to go through (stress testing),” Davis said. “You’ve got to figuree it will be At issue iscommon capital, an institution’sa buffer against loan losses and drops in securities and othe assets.
Common capital doesn’t include intangiblee assets suchas goodwill, and also leavea out Troubled Asset Relief Program bailout funds from the government. Usinh common capital as the basis for the stress testds is a more conservative approach than regulators have used in the and leaves less cushion for potential losses at banks, analysts say. In its stresa test of Huntington, found that the $51.u7 billion-asset institution would need $1.8 billionb more in capital to handle the types of lossews predicted by regulators if the recessionnworsens considerably. The test was performedf prior tothe bank’s May 8 issuanc of 38.5 million shares, whichj raised $120 million.
Huntington CEO Stephen Steinour did not agrerwith RBC’s assessment. “That’s preposterous, thosre kinds of numbers,” he Huntington’s loan portfolio, particularly in consumer loans, is strong and isn’t likely to suffer the worst-case-scenario lossex used by RBC and the governmentr in itsstress tests, Steinour “I don’t attach any credibility to thingd like that,” he said. The RBC analysis isn’t the worst of the estimatese for Huntington. A May 12 report by Va.-based using Huntington earnings and capital levels asof Dec. 31 said the bank may need to raised $3.3 billion, the most of any of the 418 bank holdiny companiesit studied.
A analyst in a May 8 reporgt said Huntington likely woulds need toconvert $435 milliomn in preferred shares to common stock to help make up a capitalo shortfall that would ariser if asset values decline by stresz test levels. Such a conversion, along with the recent stocm issuance, would dilute common share s by37 percent, the analyst Steinour said Huntington, whichn is well within regulatory capital requirements using the more traditional measuree that includes TARP has no plans to raise more Other banks came out well in the evaluations.
The RBC for example, said neither Akron-based nor Newark-based would need more capitaol in the hypothetical downturn the government put the biggerbanksa through. Despite their relatively strong however, the banks aren’t resting. Prior to repaying its $125 million in TARP money Aprill 22, FirstMerit put itself through a series of stresss tests similar to those performed on biggerf banks bythe government, said CEO Paul Greig. “In this we’re in uncharted economic waters and we wanted to make sure basef on fairly strident assumptions that our capitap and asset quality were sufficient to give shareholderss comfort in ourrepaying TARP,” he said.
Park Nationa l also is taking a conservative approac in evaluating its own books for potential said CFOJohn Kozak. He said he believe s regulators will employ thestres tests’ conservative loss levels even for community banks that are unlikely to post such losses. “Do we thinkl regulators, when they come in, are going to look at our documentin g of how we would do on thestress test? We would say yes, absolutely,” he said.