{"id":3351,"date":"2016-07-11T18:53:00","date_gmt":"2016-07-11T22:53:00","guid":{"rendered":"http:\/\/162.223.13.186\/~zacksim\/banks-mostly-ace-fed-stress-tests\/"},"modified":"2022-02-26T13:22:12","modified_gmt":"2022-02-26T13:22:12","slug":"banks-mostly-ace-fed-stress-tests","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/banks-mostly-ace-fed-stress-tests\/","title":{"rendered":"Banks (Mostly) Ace Fed Stress Tests"},"content":{"rendered":"

Nearly all the largest U.S. banks have passed the Fed\u2019s annual stress tests unconditionally<\/em> this year\u2014meaning, these banks are deemed fit to ward off financial stresses or crises and are eligible to raise payouts to their shareholders given their present capital stock and risk control practices.<\/p>\n

As part of the Dodd-Frank Act, stress tests conducted by the Fed present hypothetical scenarios for banks to run through to test their mettle. According to The Wall Street Journal, this year\u2019s testing scenario was reportedly more severe assuming the following\u2014U.S. unemployment rate soaring to 10% with a plunging stock market reduced to half of its value and Treasury yields turning negative. Although banks are estimated to collectively lose $385 billion on loans in this worst case scenario, most of them have been evaluated to have sufficient capital cushion and risk management tools to combat the crises. Other, less harsh, scenarios included a minor U.S. recession with mild deflation, and a benchmark reflecting average projections of economists.<\/p>\n

Passing the test with flying colors, institutions like Bank of America and Citigroup could heave a sigh of relief, having received unconditional approvals in 2015 and 2014 respectively. Following the test results, Citigroup announced a notable hike in quarterly dividends from 5 cents to 16 cents along with a share repurchase of around $8.6 billion. Bank of America plans to raise payouts to 7.5 cents from 5 cents and buy back $5 billion equity. JPMorgan Chase & Co. has decided to repurchase $10.6 billion of shares, up from last year\u2019s announced $6.4 billion.<\/p>\n

Of the 33 banks reviewed, the only ones not to fully pass the tests were Morgan Stanley and the U.S. subsidiaries of Deutsche Bank AG and Banco Santander; the latter two failed while Morgan Stanley received a conditional<\/em> nod from the Fed to raise shareholder dividends. The Fed\u2019s main gripes with these three banks were inadequate capital planning and risk management processes. Nevertheless, the banks\u2019 capital ratios were still well above the required minimum.<\/p>\n

Even as it prepares to meet the conditions laid down by the Fed to improve its capital management and internal control practices, Morgan Stanley is set to pay dividends of 20 cents (up from 15 cents) and ramp up share buybacks to $3.5 billion for the coming four quarters (from the preceding period\u2019s $2.5 billion).<\/p>\n

Bottom Line for Investors<\/strong><\/p>\n

With more than 90% of the large U.S. banks passing the stress tests, this could create a boost for U.S. banking stocks, bolstered by dividend raises and share repurchases already announced by some of the largest financial firms.<\/p>\n

The test results couldn\u2019t have come at a better time. Even as markets grapple with global risks, the tests reaffirm the U.S. banking system\u2019s resilience (even under the most extreme test scenarios)\u2014perhaps this is the most comforting proof of the U.S. economy\u2019s sturdy fundamentals.<\/p>\n

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Nearly all the largest U.S. banks have passed the Fed\u2019s annual stress tests unconditionally this year\u2014meaning, these banks are deemed […]<\/p>\n","protected":false},"author":1,"featured_media":4124,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71,72],"tags":[],"class_list":["post-3351","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-private-client-group","category-steady-investor-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3351","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=3351"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3351\/revisions"}],"predecessor-version":[{"id":11284,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3351\/revisions\/11284"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=3351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=3351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=3351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}