Banks Foresee Endless Profits Five Years After Crisis
NEW YORK (TheStreet) -- Five years after the collapse of Lehman Brothers, the nation's largest banks disclosed in a series of self-administered stress tests on Monday that they expect to be profitable during the next financial crisis.
What a difference five years makes.
It wasn't so long ago that all of the largest lenders in the U.S. were either in search of life saving financial support or on the verge of accepting billions in buffer capital that the government shoved into bank coffers as part of its Troubled Asset Relief Program . Now, banks expect that they will be able to maintain minimum capital ratios generally in excess of 9%, in the event of another market crash and severe recession over the next two years. Many even expect to remain profitable.
Stress test results released by large lenders on September 15 indicate a double-edged sword. There is no denying that firms such as Morgan Stanley
Morgan Stanley, US Bancorp
Optimism isn't uniform across the banking sector.
Indeed, it is troubling that there is a large divergence between expected losses in banks' internal stress tests versus those made by the Federal Reserve in its annual CCAR. Consider that while JPMorgan expects minimal losses in a stressed environment, the Fed's last CCAR projected $32.2 billion in losses. It forecast far higher losses on the bank's loans and activity. The same holds true at Bank of America and, to a lesser extent, Citigroup.
Overall, the Fed projects that the nation's four largest banks would lose nearly $140 billion in a time of crisis, while internal estimates released by those banks on Monday only forecast about $50 billion in losses. Analysts generally believe the next round of stress tests from the Fed in March of 2014 will move closer to banking industry estimates, instead of vice versa.