Thursday evening, the Federal Reserve released the second part
of the stress test results for the nation's largest banks and
In all, 16 of the nation's 18 largest financial institutions
had their stress tests and capital plans approved by the Fed,
with two of the 16 having to resubmit by the third quarter.
In all, the Fed authorized some $30 billion in new share
buybacks, including the first buybacks since the crisis for Bank
of America (NYSE:
) and Citigroup (NYSE:
). The two banks received the largest government bailouts in the
depths of the crisis and the new capital repurchase plans signal
new found confidence in the banks.
Notably, Goldman Sachs (NYSE:
) and J.P. Morgan Chase (NYSE:
) must resubmit by the third quarter their plans and updated
The internal tests run by the banks did not match the results
of the Fed's models and thus the banks must resubmit by the third
quarter. Goldman forecast that it would lose some $6.6 billion in
the worse scenario, well below the Fed's estimate of $20.5
billion, and J.P. Morgan forecast losing only $200 million
whereas the Fed believes losses could swell as large as $32.3
Staying with J.P. Morgan, investors will see a sharp decline
in the share buyback program this year as the bank attempts to
met capital requirements ahead of schedule. J.P. Morgan's share
buyback program will only purchase an additional $6 billion in
stock in 2013, well below the 2012 buyback of $15 billion.
However, J.P. Morgan shares have rallied nicely from the
post-London Whale low of last summer by some 65 percent.
The two banks to have capital plans rejected were Ally
) and BB&T (NYSE:
). Ally has remained majority owned by the U.S. government since
its bailout in 2009 and objects to the harsh criticism of the
Fed, saying that the mechanics of the stress tests are
American Express (NYSE:
) was one of fourteen banks to have its capital plan approved,
but only after resubmitting its proposal with a lower capital
distribution included. Twelve of these banks also announced
dividend increases for the next year, showing that banks are now
returning back to the normalcy of returning capital to
Bank of America announced a total buyback of $10 billion in
its latest stress test. The bank plans on buying back $5 billion
in common stock and an additional $5 billion of preferred shares
outstanding. The bank did not plan to raise its quarterly
dividend from $0.01 per share.
Citigroup also announced a new buyback program, announcing
$1.2 billion in share buybacks. The bank did not indicate that it
would increase its dividend from $0.01 per share and did not plan
any asset sales to bolster capital either.
Wells Fargo (NYSE:
) is being touted as a clear winner in the stress tests. The bank
announced an increase in the dividend from $0.25 per share to
$0.30 and added to its share buyback program. The bank also
announced overnight that CEO John Stumpf was to take home $22.9
million in pay for the past year, making him the second highest
paid CEO of the major banks behind Goldman's Lloyd Blankfein.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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