At D.A.T.A. we frequently receive the question about whether our D.A.T.A. Scores are predictive of future stock price performance. First of all, we have demonstrated that D.A.T.A. Scores are predictive of future performance on numerous occasions based on our back tests; and trust us, we are dubious of most back tests. Ours are never optimized and we publish the results of all of the tests that we do. In other words, we do not quest for the best.
Second, and germane to today’s article on 12 April 2023, Warren Buffett spoke to CNBC’s SquawkBox and said that we are not through with bank failures. You may recall that on 21 March 2023 Deception And Truth Analysis conducted a thorough assessment of each of the S&P 500’s sixteen banks’ most recent regulatory documents. We found that, as a group the average D.A.T.A. Score was 1.80%, or below the mean D.A.T.A. Score for the S&P of 4.90% and standard deviation of 13.21%. Additionally, we highlighted each bank’s most deceptive fragment and the themes associated with those fragments. The average D.A.T.A. Score of their most deceptive fragments was -54.47%, or 4.5 standard deviations below the mean D.A.T.A Score.
Of the 16 banks assessed, 8 banks had their documents assessed as truthful in the aggregate with an average D.A.T.A. Score of 10.59%. The remaining 8 banks had their documents assessed as deceptive in the aggregate with an average D.A.T.A. Score of -6.99%. For each bank we also highlighted their most deceptive fragments and the themes contained within those fragments.
Most importantly, for every bank their most deceptive fragment had to do with net-interest income, charge offs, loan portfolios, etc. (see below). In other words, because our most deceptive fragment features the preceding themes then unambiguously D.A.T.A. highlighted the very issues highlighted by the Oracle of Omaha. Thus, Warren Buffett affirms what D.A.T.A. said weeks ago.
CNBC’s Interview with Buffett
We reprint below (thank you, CNBC), CNBC’s article:
“Investing legend Warren Buffett believes there could be more bank failures down the road, but depositors should not ever be worried.
“’We’re not over bank failures, but depositors haven’t had a crisis,’ the Berkshire Hathaway chairman and CEO told CNBC’s Becky Quick on ’Squawk Box’ Wednesday from Tokyo. ‘Banks go bust. But depositors aren’t going to be hurt.’
“The collapses of Silicon Valley Bank and Signature Bank last month — the second- and third-largest bank failures in U.S. history, respectively — prompted extraordinary rescue action from regulators, who backstopped all deposits in the failed lenders and provided an additional funding facility for troubled banks.
“Buffett said that some bankers will continue this behavior and that will put the shareholders in some of the stocks at risk.
“But the 92-year-old investor said there was unnecessary fear and panic about depositors losing their money, when the system is set up to protect the entire nation’s deposits.
“’The costs of the [Federal Deposit Insurance Corp.] are borne by the banks. Banks have never cost the federal government a dime. The public doesn’t understand that,’ said Buffett. ‘Nobody is going to lose money on a deposit in a U.S. bank. It’s not going to happen … you don’t need to turn a dumb decision by managers into a panicking the whole citizenry of the United States about something they don’t need to be panicked about.’
“He stressed that it’s crucial that banks retain the confidence of the public and they can lose that confidence in seconds, as highlighted in the recent blowup.
“Buffett has been a white knight for troubled banks in the past. He famously came to Goldman Sachs’ rescue with a $5 billion cash infusion after the collapse of Lehman Brothers in 2008. In 2011, Buffett injected $5 billion into then-beleaguered Bank of America in a major show of faith.
“The “Oracle of Omaha” said some of the ‘dumb’ things that banks do periodically became uncovered during this period, including having mismatched assets and liabilities as well as questionable accounting.
“’Bankers have been tempted to do that forever,’ Buffett said. ‘Accounting procedures have driven some bankers to do some things that have helped their current earnings a little bit and caused the recurring temptation to get a little bit bigger spread on record, a little more than earnings.’”
Deception And Truth Analysis of S&P 500 Banks
Below we excerpt the part of our article of 21 March 2023 where we assess each bank’s most recent regulatory documents:
Bank of America
Document: 10/28/22 10(q)
D.A.T.A. Score: -25.08%
Most deceptive document fragment:
D.A.T.A. Score: -78.44%
Themes: Net interest income, non-interest income, provisions for credit losses, non-interest expense, return on average allocated capital, deposits’ performance indicators, consumer investment assets, and net income from consumer lending.
Citigroup
Document: 2/27/2023 10(k)
D.A.T.A. Score: -3.91%
Most deceptive document fragment:
D.A.T.A. Score: -73.56%
Themes: Net credit losses, reclassification of loans, capital ratio, supplementary leverage ratio, ICG net income, ICG revenues, services revenues, markets revenues, banking revenues, PBWM net income, PBWM revenues, and US personal banking.
Citizens Financial Group
Document: 2/16/2023 10(k)
D.A.T.A. Score: +6.20%
Most deceptive document fragment:
D.A.T.A. Score: -59.02%
Themes: Non-interest expense, net charge-offs, securities portfolio, the fair value of the debt securities portfolio, amortized cost basis of the HTM portfolio, the securities portfolio’s duration and convexity risk, total loans and leases, allowance for credit losses, the NCO ratio, commercial portfolio, commercial criticized balances, commercial and industrial criticized balances, and commercial real estate criticized balances.
Comerica
Document: 2/14/2023 10(k)
D.A.T.A. Score: -3.71%
Most deceptive document fragment:
D.A.T.A. Score: -60.65%
Themes: Management accounting system, net interest income, the Funds Transfer Pricing (FTP) methodology, FTP crediting rates, FTP charge rates, business segment performance, loan portfolio, and deposits.
Fifth Third Bancorp
Document: 2/24/2023 10(k)
D.A.T.A. Score: -4.75%
Most deceptive document fragment:
D.A.T.A. Score: -70.04%
Themes: Effective risk management, Enterprise Risk Management Framework, how their risk appetite is determined, risk appetite principles, risk categorization, process for managing risk, and its Three Lines of Defense structure.
Huntington Bancshares
Document: 2/17/2023 10(k)
D.A.T.A. Score: +2.99%
Most deceptive document fragment:
D.A.T.A. Score: -46.61%
Themes: Board Committees, including the Audit Committee, Risk Oversight Committee, Technology Committee, and Human Resources and Compensation Committee; Enterprise Risk Management and Risk Appetite Framework; key risk indicators; executive level committees to manage risk; and three lines of defense with regard to risk management.
JP Morgan Chase
Document: 2/21/23 10(k)
D.A.T.A. Score: -4.32%
Most deceptive document fragment:
D.A.T.A. Score: -59.74%
Themes: Changes in Basel III capital, changes in the components of RWA under Basel III, model & data changes, movement in portfolio levels, components of the firm’s SLR, off-balance sheet exposures, how business segments are allocated capital, dividend payouts, and suspension of share repurchases.
Keycorp
Document: 2/22/2023 10(k)
D.A.T.A. Score: +6.57%
Most deceptive document fragment:
D.A.T.A. Score: -53.86%
Themes: Regulatory capital requirements, how capital instruments are assigned to tiers under Basel Committee, market risk capital framework, narrative around Basel III and why it was created, how the additional capital requirements under Basel III for large banking organizations do not apply to the company, Stress Capital buffer, the federal prompt corrective action framework established under the FDIA groups FDIC-insured depository institutions, and the five different capital categories.
M&T Bank
Document: 2/22/2023 10(k)
D.A.T.A. Score: -2.91%
Most deceptive document fragment:
D.A.T.A. Score: -62.25%
Themes: Costs associated with data processing, risk management, and other support services; the Discretionary Portfolio segment and its assets; reasons for the decline in net income; net interest income; Residential Mortgage Banking segment; and the Retail Banking segment.
PNC Financial Services Group
Document: 11/2/2022 10(q)
D.A.T.A. Score: -0.70%
Most deceptive document fragment:
D.A.T.A. Score: -52.29%
Themes: Real Estate segment, Commercial Banking segment, the deposit strategy of Corporate & Institutional Banking, average total deposits, the 2021 BBVA acquisitions, revenues and expenses of newly acquired companies, Treasury Management business, Commercial mortgage banking, capital markets related products, and the Asset Management Group along with its two primary businesses of PNC Private Bank and Institutional Asset Management.
Regions Financial Corp.
Document: 2/24/2023 10(k)
D.A.T.A. Score: +8.97%
Most deceptive document fragment:
D.A.T.A. Score: -51.50%
Themes: The markets in which Regions competes, deposits, non-interest bearing demand deposits, savings accounts, certificates of deposit, the estimated uninsured deposits, long-term borrowings, and “Credit Ratings” of the bank.
SVB Financial Group
Document: 2/24/2023 10(k)
D.A.T.A. Score: +11.83%
Most deceptive document fragment:
D.A.T.A. Score: -49.77%
Themes: Investment products, client investment fees, wealth management and trust fees, foreign exchange fees, credit card fees, deposit service charges, lending related fees, investment banking revenues, commissions, other noninterest income, and employee compensation.
[Note: In SIVB’s second and third most deceptive fragments in this 10(k) and in its many previous years documents, the most deceptive fragments were unambiguously about their net interest income, their asset portfolio, and the assumptions baked into their risk management model. See our full writeup Case Study: Silicon Valley Bank for details.]
Truist Financial Corp
Document: 2/28/2023 10(k)
D.A.T.A. Score: +1.57%
Most deceptive document fragment:
D.A.T.A. Score: -64.63%
Themes: Risk-taking, compensation plans, the company’s purpose-mission-values as the basis for their risk management, risk management oversight, its three lines of defense in managing risk, the executive level committees that weigh in on risk management, types of risks the bank faces, effective management of market risk, risk management objectives, and interest rate risk.
US Bancorp
Document: 2/27/2023 10(k)
D.A.T.A. Score: +18.66%
Most deceptive document fragment:
D.A.T.A. Score: -29.02%
Themes: Minimum effective [Basel III] ratios, discussion around the calculation of risk-weighted assets, the effect of proposed new Basel standards on the bank and USBNA, current expected credit loss accounting standards, the 2022 stress test cycle, Comprehensive Capital Analysis and Review rules, and stress-testing under CCAR and Dodd-Frank.
Wells Fargo & Company
Document: 2/21/2023 10(k)
D.A.T.A. Score: +27.91%
Most deceptive document fragment:
D.A.T.A. Score: -6.80% [Note: Wells Fargo & Company uses “hereby incorporated by reference” language through much of its 10(k) filing. Thus, its document as evaluated in our DATAbase product is less comprehensive.]
Themes: Capital requirements, subsidiaries insured by the FDIC, the FDIC and its Deposit Insurance Fund, the effect of termination of the FDIC’s DIF on the company, disclosures by banks about consumers’ information, Sarbanes-Oxley Act, the USA Patriot Act, and a discussion about the increase in the amount legislation and regulation in the United States.
Zions Bancoporation
Document: 11/3/22 10(q)
D.A.T.A. Score: -10.57%
Most deceptive document fragment:
D.A.T.A. Score: -53.27%
Themes: A transfer of $9.0 billion of amortized cost of pass-through mortgage-backed AFS securities to the HTM category, their products sold to state and local governments, investments in municipalities, the collateral backing their municipal portfolio, internal risk grades assigned to the municipal portfolio, the ratio of loans and leases to total assets, the loan and lease portfolio, non-interest bearing securities, changes in premises-equipment-software, a project to replace their core loan and deposit banking systems, deposits, and risk-management policies.
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