JUPITER, FL -- (MARKET WIRE) -- 05/07/09 -- The bank stress tests released today have failed to achieve their goal of accurately estimating potential bank losses, declared Martin D. Weiss, Ph.D., president of Weiss Research, Inc.

According to the banking regulators' joint release, if the economy were to track the more adverse scenario, losses of the 19 firms during 2009-2010 could reach $600 billion. However, Weiss points to three reasons the losses could be significantly larger.

1. The banking regulators' "more adverse" scenario is actually less adverse than the current reality: It is predicated on a 3.3 percent decline in GDP in 2009, while actual GDP is already contracting at a 6.1 percent annual rate. A deeper or longer decline in GDP, in turn, would naturally drive loan loss rates sharply higher than those assumed in the stress tests.

2. The stress tests understate the banks' exposure to derivatives. For example, at year-end 2008, JPMorgan Chase held $87.4 trillion in notional value derivatives, including $8.4 trillion in credit default swaps (CDSs), or more than half of the total CDSs held by all U.S. commercial banks. "Just their credit exposure alone represents nearly four times their capital," says Weiss. "However, in their 'more adverse' scenario, the banking regulators are estimating JPMorgan Chase's total counterparty and trading losses will not exceed $16.7 billion, a fraction of the true potential losses in a financial crisis."


3. The International Monetary Fund (IMF) estimates future potential losses among financial institutions of over $3 trillion. Although the IMF estimate represents a broader universe of institutions, it implies significantly larger losses than those estimated by U.S. banking regulators for the largest 19 bank holding companies. "Moreover," adds Weiss, "if the IMF is right, an additional $3 trillion in global losses would necessarily involve greater systemic risk for U.S. institutions, an issue which is not adequately covered in the stress tests."

Based on data provided by TheStreet.com Ratings, by the Comptroller of the Currency (OCC), and in first quarter financial statements, Weiss offers the following evaluations for the 19 institutions that were subject to the federal stress tests:



Weiss Evaluation of 19 Institutions Subject to Federal Stress Tests ------------------------------------------------------------------- Institution Assets ($Bil.) Weiss Evaluation ---------------- ---------------- J.P. Morgan Chase & Co. 2,079 Risk of failure Citigroup 1,823 Risk of failure Wells Fargo & Co. 1,286 Risk of failure Goldman Sachs Group 885 Risk of failure GMAC LLC 189 Risk of failure SunTrust Banks Inc. 179 Risk of failure Fifth Third Bancorp 119 Risk of failure Bank of America Corp. 2,322 Borderline Morgan Stanley 659 Borderline PNC Financial Services Group 286 Borderline US Bancorp 264 Borderline BB&T Corp. 143 Borderline Regions Financial Corp. 142 Borderline American Express Co. 121 Borderline Keycorp 98 Borderline MetLife 502 Adequate capital Bank of NY Mellon Corp. 203 Adequate capital Capital One Financial Corp. 177 Adequate capital State Street Corp. 142 Adequate capital ---------------- ----------------





-- Seven institutions -- JPMorgan Chase & Co., Citigroup, Wells Fargo & Co., Goldman Sachs Group, GMAC LLC, SunTrust Banks, Inc. and Fifth Third Bancorp -- are at risk of failure with a continuation of current economic and financial conditions. -- Eight institutions -- Bank of America, Morgan Stanley, PNC Financial Services Group, US Bankcorp, BB&T Corp., Regions Financial Corp., American Express Co., and Keycorp -- are borderline, meaning they could be at risk of failure with worsening economic or financial conditions. -- Only four institutions -- MetLife, Bank of NY Mellon Corp., Capital One Financial Corp. and State Street Corp. -- appear to have adequate capital to withstand worsening conditions.




Weiss concludes: "To survive a true worst-case scenario, the nation's largest banks will need far more capital than is currently being recommended by the regulators; and raising that capital could be much more difficult."

About Martin D. Weiss

Martin D. Weiss, Ph.D., founder and president of Weiss Research, Inc., is a nationally recognized expert on financial company solvency and the author of the new New York Times bestseller, "The Ultimate Depression Survival Guide."

Dr. Weiss, along with Weiss Research analyst Mike Larson, specifically named nearly all of the major institutions that have suffered a financial failure in this crisis. Weiss predicted the demise of Bear Stearns 102 days prior to its failure, Lehman Brothers (182 days prior), Fannie Mae (eight years prior), and Citigroup (110 days prior). Similarly, the U.S. Government Accountability Office (GAO) reported that, in the 1990s, Weiss greatly outperformed Moody's, Standard & Poor's, A.M. Best and D&P (now Fitch) in warning of future life insurance company failures. (See the Weiss forecast track at http://blogs.moneyandmarkets.com/martin-weiss/the-only-ones-who-warned-ahead-of-time/ and the GAO report at http://archive.gao.gov/t2pbat2/152669.pdf.)

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