Big Four U.S. banks would lose $144-billion in bad economy

The whole world seems focused on which U.S. banks did and did not pass the new Federal Reserve stress tests, with all eyes on Citigroup because it was the only Big Four bank to fail.

But keep in mind that Citi failed by 10 basis points, posting a tangible common equity ratio of 4.9 per cent. That's just shy of the 5 per cent minimum that the Federal Reserve determined is required to provide a high degree of confidence that the banks can withstand unexpected future losses.

Forgetting that metric for just a second, you quickly realize that even the banks that passed the tests would still post massive losses should the U.S. economy nosedive. Combined, the Big Four U.S. banks – Bank of America, Citigroup, JP Morgan Chase and Wells Fargo – would lose $144-billion (U.S.) by the fourth quarter of 2013, according to the Fed's calculations.

$144-billion! And their loan losses would hit $251-billion. Certainly not chump change.

To give you a sense of just how doomed these banks would be, here are some of their easy-to-understand metrics, followed by those for Ally Financial, which scored lowest on the stress tests. You'll see that Ally's losses would be minimal compared to what the banks that "passed" would put up.

The following numbers are calculated based on what the Federal Reserve would expect the banks to lose from Q4 2011 to Q4 2013 in a slumping economy. All figures in U.S. dollars.

Bank of America

Net loss before tax: $51.3-billion

Loan losses: $70.1-billion

Loan portfolio loss rate: 8.3 per cent

Biggest contributor to loan losses: First lien mortgages - $17.7-billion

Citigroup

Net loss before tax: $50.3-billion

Loan losses: $67.0-billion

Loan portfolio loss rate: 11.2 per cent

Biggest contributor to loan losses: Credit cards - $27-billion

JP Morgan Chase

Net loss before tax: $22.9-billion

Loan losses: $55.8-billion

Loan portfolio loss rate: 8.1 per cent

Biggest contributor to loan losses: Credit cards - $21.3-billion

Wells Fargo

Net loss before tax: $19.6-billion

Loan losses: $58.3-billion

Loan portfolio loss rate: 8.2 per cent

Biggest contributor to loan losses: First lien mortgages - $15.9-billion

Ally Financial

Net loss before tax: $9.8-billion

Loan losses: $3.6-billion

Loan portfolio loss rate: 3.3 per cent

Biggest contributor to loan losses: Consumer loans - $2-billion