Invictus’ Approach

The Invictus ICAM methodology takes a different approach. By intelligently stress testing the fundamental building blocks that drive a bank’s performance (the loan portfolio), instead of trying to analyze the trends of management’s reported results, a much more accurate picture emerges. This is especially true in today’s altered banking and economic environment, where actual losses in a bank’s existing loan commitments can take a long time to finally show up on the bank’s reported statements because of the current accounting requirements. The Invictus models "see through" these delays to accurately predict bank performance.

However, being able to effectively analyze a single bank on a forward looking basis is only part of the story. A key aspect of the Invictus approach is to run our model for all banks in a region or under the jurisdiction of a single regulator. This approach allows for a true "apples to apples" comparison of a bank and its competitive set. For example, in the U.S., we run almost every FDIC-insured bank through our model — about 7600.

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The Power of the ICAM Methodology

The ICAM methodology offers much more than simply being able to predict expected future levels of Tier 1 Capital. In combination with other analytical tools we’ve developed, some of the powerful benefits it offers include:

Timing Issues

The ability to predict the timing of changes to the bank’s portfolio, allowing management time to take corrective actions as necessary.

Competitive Positioning

It is critical to understand a bank’s position within its competitive framework. Because Invictus runs stress tests on every bank in the regulatory region (e.g. the FDIC in the U.S.) using consistent assumptions, it allows for accurate comparisons of all a bank’s competitors on an "apples to apples" basis.

Minimizing Mandated Regulatory Capital and maximizing Unrestricted Bank Capital

The ICAM methodology helps bank executive management navigate the complicated road of presenting the bank’s true picture to regulators helping to minimize the Mandated Regulatory Capital (MRC). This effectively increases Unrestricted Bank Capital (UBC) which can be deployed in asset growth or other corporate endeavors to increase profitability

Asset Reallocation

As loans are retired or written off, there are fewer opportunities to replace them. How a bank redeploys its assets over time is critical to its earning potential. The ICAM methodology automatically tracks asset redeployment and its impact on a bank, allowing management to proactively address this critical issue.

Impact on Earnings

Expected future earnings can only be properly evaluated when the impact of changes to the asset portfolio are taken into account—and that includes not just the impact of the degradation of loans, but also the impact of the redeployment of capital into different loan classes given the bank’s competitive position and the economic performance of its region. This is exactly what the ICAM does; incorporating key drivers of earnings such as changes in Non-Performing Assets and asset reallocation issues into the model.

Liquidity Factors

While liquidity itself does not have an effect on Tier 1 capital, the liability structure can have an enormous effect the closer a bank is to having a sustainability issue, and impacts a bank’s competitiveness and growth. The ICAM Stress Test automatically adjusts for the expected impact of liabilities according to the asset mix, potential stresses and reallocated assets.

"What If" Scenarios

The ICAM can easily evaluate multiple possible scenarios. When we work with banks to create customized stress test analyses, it allows bank executive management and directors to assess risk factors under a variety of potential situations. These customized tests help them to manage risk and proactively to develop strategies for each scenario.

Provisioning Adequacy

The ICAM anticipates provisioning needs based on expected changes at the customer level, providing a guideline for evaluating current provisioning strategies.

Impact on Leverage

The accurate forecasting of a bank’s capital needs is critical to regulatory compliance and financial success. Excess capital means less leverage, fewer earning assets and therefore, less profit.

Enterprise Value

The ICAM provides the foundation for evaluating a bank’s true value, which cannot be determined without first recognizing the impact of expected deterioration in the existing loan portfolio.

Litigation Risks

The ICAM provides the foundation for evaluating a bank’s potential liability risk. In conjunction with our liability-focused stress test system, the ICAM can identify multiple secondary factors which impact a bank’s potential for shareholder-driven lawsuits or other legal action.

Acquisition Targeting

Because we stress test every bank in a regulatory region, the ICAM can easily identify potential acquisition targets. The ICAM provides an evaluation of those targets on a post-stress basis, permitting the acquirer to quickly triage targets before formal due diligence.

Combined Entity Analysis

The ICAM can evaluate the post-stress impact to the combined entity, allowing significant insight to the longer term impact of any potential acquisition.

Regardless of whether you are a bank, a bank director, a regulator, a D&O underwriter, an acquirer or an investor, Invictus can provide the right solution for you.