In a shocking development, the Federal Reserve has rejected
the capital plan of
) in spite of the latter's Stress Test clearance. Neither the
company nor the Fed has clearly disclosed the reasons for the
rejection of the capital plan.
BB&T had announced a 15% dividend hike in January this year,
and this will remain unaffected despite the recent disapproval of
its capital plan. In addition, the Fed has not objected to
BB&T's continued payment of preferred dividends for its
outstanding classes of preferred stock. However, all its other
strategies, including stock buybacks, have been put on hold until
the company re-submits its plan.
Based on certain "qualitative" reasons, the Fed might have
rejected the plan. These may include flawed corporate governance,
unresolved supervisory issues, risk-management processes,
unsatisfactory assumptions about the capital plan and a
precarious capital distribution.
Further, the Fed has noted that in March, BB&T had
re-calculated its risk-weighted assets (RWAs), which led to an
increase in RWAs. Subsequently, it will result in lower capital
ratio as compared with the Fed's prediction. The Fed, which has
been overtly cautious ever since the last financial meltdown,
took no chance and rejected the plan.
BB&T is not the only firm whose plan was shelved. Ally
Financial Inc. also had its capital plan rejected. It was the
only bank that failed to meet the Fed's minimum requirement of 5%
Tier 1 common capital ratio to clear the stress test. Therefore,
with 1.5% capital ratio, Ally remains unstable, struggling with
troubled mortgages and other distressed businesses, and
consequently witnessed Fed's rejection.
However, the remaining 16 banks, including
Wells Fargo & Company
), The Bank of New York Mellon Corporation and U.S. Bancorp, have
received approval for capital plans.
Though Wall Street biggies like
The Goldman Sachs Group Inc.
JPMorgan Chase & Co.
) received the Fed's approval for the proposed capital plans, the
banks will need to resubmit the plan by the end of the third
quarter of 2013. These two banks have been asked to resubmit the
capital plans due to the weaknesses recognized in the capital
BB&T CORP (BBT): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
To read this article on Zacks.com click here.
As BB&T is one of the most well capitalized banks, the
rejection comes as a surprise. Moreover, this may act as a
demoralizing factor for the investors.
BB&T currently holds a Zacks Rank #3 (Hold).