The Invictus Solution

One of the primary and most valuable aspects of the Invictus methodology is that the stress test is applied in the US to all 7600+ banks. The methodology includes regional differences overlaid on a national picture. From this, the methodology uses a series of important secondary filters that are dependent on the "post stress" analysis performed on all banks. Different from sustainability or the inherent litigation risk analysis of the other Invictus products, the Invictus Bank Analytical Rating System (IBARS™) model approaches the enterprise value of banks from a completely different framework: financial performance of banks does not exist in a vacuum. Competitive and environmental factors must be included to see the full picture.

The IBARS model:

• Applies a consistent stress test across all banks in the United States on a quarterly basis.
• Applies a series of secondary filters oriented toward enterprise value which include post stress performance in the banks’ footprints, stability of earnings and replacement of assets as loans mature over the horizon, and the relative strength of bank vis-à-vis its local competition.
• Back tests all results and heuristically adjusts the model.

Why is Reallocation of Assets Important?

A large amount of loans will mature or reset in the next 3 years. Many of those are construction loans or commercial real estate loans. Given the future outlook over the intermediate term, it will be virtually certain that there will not be the availability of assets earning a significantly high enough yield to offset the maturities or defaults. Thus a bank is limited by the capital available to replace those loans with other earning assets and is also limited by the availability of borrowers in its footprint. Only those strongest banks in a region, on a post stress basis, will have superior performance to the market. The post stress competitive positioning and the asset reallocation methodology, which can only be performed by Invictus, provides the investment community with analysis that is vitally important for:

• Investment in publicly held or privately held banks — discovery of the correct investment and its value.
• Merger and Acquisition — targeting, evaluation, negotiation, and due diligence. The methodology is used to understand the inherent value of transactions, begin starting point negotiations, organize due diligence, and compare necessary risk and stress related documentation for use in regulatory approval.
• Valuations and fairness opinions — given the extremely sensitive nature of most banks’ balance sheets, valuations and fairness opinions can ONLY be done on a post stress basis.
• Rating and ranking the expected performance of a portfolio of banks.