Has anyone figured out how to make the numbers in Table 3 (PDF p. 10) in the stress test results add up? I understand what all the lines mean individually, but the presentation seems incomplete. Looking at Citi for example, I know that they expect 104.7 in losses on existing assets, but they expect Citi to make 49.0, for a net loss of 55.7. Common capital on 12/31/08 was 22.9, and 22.9 – 55.7 = -32.8, so absent recapitalization that would leave Citi at -32.8 on 12/31/10. The “SCAP buffer” (which seems like the opposite of a buffer, but whatever) is 92.6, so with the buffer Citi would have 59.8 on 12/31/10. But 59.8 is well over 4% of Citi’s risk-weighted assets of 996.2.
Maybe the model has Citi’s assets climbing up to $1.5 trillion? Or maybe the losses and “resources to absorb losses” do not have a dollar-for-dollar effect on common capital?
Anyway, it seems like at least one number is missing. If you can explain this, or link to someone who can, I will . . . be grateful.
Update: The most common theory is that 59.8 is 6% of 996.2. But I don’t think that is the explanation, for the reasons I cite in this comment reply and that Nemo also flagged. Also, Erich Riesenberg points out that the fact that this works out to 6% for Citi is a pure coincidence, if you look at the same calculation for other banks.
By James Kwak