2009-05-07 Stress Release:
US Bancorp reportedly passed the FED’s stress test to see if it was adequately capitalized, with no need to raise any more cash. You have to wonder what kind of test it was when all 19 insolvent banks passed it, some even needing more capital.
US Bancorp reported third quarter results, which show that the bank is much better off than most others in this credit crisis, meaning that it’s sinking slowly instead of like a rock.
- Tally for Write-Downs/Charge-Offs: $1.6B + $498M = $2.098B
- Tally for cash raised: = $0.0
- Current level of Level III assets at $1.7 million
- Current level of loan loss reserves at $748 million
We now sum all the distresses to get the current Misery Index of $3.016 B
US Bancorp reported Q2 2008 results today and was greeted with an immediate downgrade from Deutsche Bank. Net charge-offs in the second quarter of 2008 were $396 million, compared with net charge-offs of $293 million in the first quarter of 2008, bringing the write-downs tally from $1.2B to $1.6B.
The bank just adopted SFAS 157 to price derivative at fair market value and they have already taken the charge against earnings.
…a $62 million unfavorable impact in first quarter of 2008 related to the adoption of
Statement of Financial Accounting Standard No. 157 “Fair Value Measurements” (“SFAS 157”) on the
valuation of certain derivatives.
On its 2008 Q2, the bank lists as significant items include
…provision for credit losses, losses, which exceeded net-charge-offs by $200 million. Provision for credit losses for the second quarter of 2008 was $596 million, an increase of $111 million over the first quarter of 2008 and $405 million over the second quarter of 2007. This represented an
incremental increase to the allowance for credit losses of $200 million in the second quarter of 2008 and $192 million in the first quarter of 2008.
- Tally for Write-Downs/Charge-Offs: $1.2 B + $396 M = $1.6 B
- Tally for cash raised: = $0.0
- Current level of Level III assets at $0.0
- Current level of loan loss reserves at $596 M
We now sum all the distresses to get the current Misery Index.
Misery Index = $2.2 B
First there was no housing bubble, then there was not going to be a recession and now thankfully there is not going to be Armageddon under any circumstances, according to US Bancorp CEO Richard Davis. So why is his bank setting aside $485M for credit losses, up from $177M a year earlier? For that matter, I would like to know why
- Net charge-offs rose to $293 million from $177 million, and nonperforming assets rose 45 percent to $845 million.
- And why are there $253 million of write-downs from buying complex debt from money market funds managed by an affiliate.
But of course it’s not our place to ask why, but rather how much. Let’s just count the write-downs of $253M and remember that net charge-offs rose to $293M, bringing the tally to 1.236B from $690M.
U.S. Bancorp, the parent of U.S. Bank, posted net income of $942M, for its 2007 fiscal fourth quarter – a 21 percent drop from a year earlier. Meanwhile, full-year 2007 net income was $4.3B, down from $4.7B a year ago. The quarterly results ‘include a nine-cent charge related to litigation involving Visa ($215M – wow!) and a four-cent loss on securities bought from some money-market funds ($107M – ouch).
According to its Q4 earnings release the bank astoundingly suffered no serious write-downs directly related to the subprime mortgage debacle. However, net charge-offs in the fourth quarter were $225M, up from $199M in the third quarter of 2007 and $169M in the fourth quarter of 2006.
The increase was attributed primarily to credit cards, and somewhat higher commercial loan net charge-offs. The commercial and commercial real estate loan net charge-offs increased to $46M in the fourth quarter of 2007, but represent only 0.23% of average loans outstanding. We should note that liability from nonperforming assets is creeping upward. Again, from page 16 of the fourth quarter earnings release:
‘Nonperforming assets at December 31, 2007, totaled $690 million, compared with $641 million at September 30, 2007, and $587 million at December 31, 2006. ‘
This clearly represents a risk from the change in credit conditions as we barrel into recession, and the bank raised the provision for credit losses from $26M from the third quarter to $225M in the fourth quarter. In fourth-quarter 2006, the number was $56M.
All in all, U.S. Bancorp seems infinitely better suited to navigate the credit crisis than some of it’s rivals, but things change fast and there are no guarantees for anyone. So it was that on February 13 “The chairman, president and chief executive of US Bancorp exercised options for 135,918 shares of common stock, according to a Securities and Exchange Commission filing…”:
Happy Valentine‘s day!