NEW YORK--(BUSINESS WIRE)--Invictus Consulting Group, LLC today announced a new service to help hedge funds access hard to obtain forward-looking bank stress test information in order to determine whether a bank stock is over, under or fairly valued in relation to its peers.
“Hedge funds rely on complex algorithms that, in turn, depend on public data to value their bank stock holdings. The problem, we have found, is that the source data for these algorithms, particularly the key ones of capital and earnings, are incorrect as generally presented and must be adjusted on a correct and consistent basis across all the banks to make the data useful. Our proprietary methodology provides the means to do this accurately, efficiently and quickly,” said Kamal Mustafa, Chairman and CEO of Invictus.
The Invictus service provides hedge funds with:
- Individual reports on specific banks
- Screen reports to find banks that fit specific bank stress test parameters
- Customized reports based on a wide variety of investment parameters selected by the fund
Funds ordering reports, which are typically available within 24 hours, can access Invictus’ bank stress test experts for further insight into results and stress testing issues.
Working with regulators and banks, Invictus has developed methodology that stress tests banks’ Tier 1 capital levels two years out for each of the more than 7,500 publicly traded and private banks in the US.
Unlike the stress tests individual banks do themselves, the Invictus Capital Assessment Model (ICAM™) takes a uniform approach, employs all publicly available data, and is based on actual asset trends, not earnings projections.
More specifically, the Invictus methodology is designed to identify and quantify inherent weaknesses existing in bank asset portfolios, including their magnitude and timing, none of which is evident in traditional banking accounting and FDIC call reports. In addition, it applies unique stress factors to both assets and liabilities and incorporates the impact of the recession. Combined, they allow detailed analysis of bank performance under changing economic scenarios, a unique aspect of the Invictus system and one having important implications on bank valuations.
In back testing, ICAM accurately predicted every bank failure in the US since September 2008 in which the institution did not receive a capital injection.
Latest Bank Stress Test Data
Based on March 31, 2011 data, the latest for which complete data is available, Invictus’ review of 996 publicly traded single bank holding companies shows:
- 708 (71%) will see a decline in Tier 1 capital
- 228 (23%) will find Tier 1 capital levels falling below 8%
- 60 (6%) will experience an 80% or more decline in Tier 1 capital
Of those banks listed on the NYSE/AMEX/NASDAQ:
- 12% with price/tangible book value of less than the mean of 1.09 will see increases to Tier 1 capital
- 19% with price/tangible book value in excess of 1.09 will experience decreases to Tier 1 capital
The analysis also shows a substantial difference between banks traded on NYSE/AMEX/NASDAQ and on the pink sheets:
- 63% of the NYSE/AMEX/NASDAQ banks will have a decline in capital, versus 76% of the pink sheet banks
- Of the 60 banks showing an 80% or more decline in capital, only 9 are on NYSE/AMEX/NASDAQ, but 51 are on pink sheets
Invictus (www.invictusgrp.com) was established in 2009 as an independent financial risk management and advisory firm. The Invictus senior management team has a depth of experience in international banking, regulation, information technology, credit, liability management securitization, insurance and investment banking. They recognized that today’s difficult global economic environment renders traditional analytical methods inadequate to evaluate a bank’s capital requirements – and have created a new and superior methodology for the financial services industry that generates a range of analytical reports providing unprecedented insight into the banking sector. Invictus’ advisory services are competitive positioning, merger and acquisition screening, and risk analysis among others.