The Federal Reserve on Thursday approved capital plans of 14 leading US banks as part of its Comprehensive Capital Analysis and Review - the so-called annual stress tests that gauge the capital adequacy of banks and the impact of buybacks and dividends on their finances.
Goldman Sachs Group Inc. (GS) and JP Morgan Chase & Co. (JPM) got a jolt from the Fed, which while not objecting to their capital plans, required the duo to submit new capital plans by the end of the third quarter to address gaps in their capital planning processes.
The capital plans of two other banks, Ally Financial Inc. and BB&T Corp. (BBT), were rejected by the Fed.
The 14 banks whose plans passed muster with the Fed are: American Express Co. (AXP), Bank of America Corp. (BAC), Morgan Stanley (MS), Capital One Financial Corp. (COF), Citigroup Inc. (C), Wells Fargo & Co. (WFC), The Bank of New York Mellon Corp. (BK), Fifth Third Bancorp (FITB), KeyCorp (KEY), The PNC Financial Services Group Inc. (PNC), Regions Financial Corp. (RF), State Street Corp. (STT), SunTrust Banks Inc. (STI), and U.S. Bancorp (USB).
The results are the second phase of stress tests, which have gained prominence as the Fed strives to maintain the health of financial institutions following their abysmal plunge at the peak of the financial crisis.
Factors the Fed considers in the tests include the firms' capital ratios under severe economic and financial market stress, the strength of the capital planning process, as well as plans to meet new Basel 3 capital requirements.
Strong capital levels help ensure that banks have the muscle to lend to households and businesses and meet their financial obligations, even in times of economic adversity.
The Fed results led to a host of banks announcing share buybacks and dividend increases. Prominent among them are:
- JPMorgan plans to repurchase an additional $6 billion of common equity between April 1 and March 31, 2014. Its Board intends to declare first quarter common stock dividend of $0.30 per share on March 19. The bank also plans to increase the quarterly common stock dividend to $0.38 per share, effective second quarter of 2013.
- Bank of America intends to buyback up to $5 billion of common stock and the redemption of about $5.5 billion in preferred stock.
- Citigroup says it will repurchase $1.2 billion of its common stock through the first quarter of 2014 and maintain current common stock dividends of $0.01 per share per quarter.
- American Express plans to raise its quarterly dividend by 15 percent to $0.23 per share, repurchase up to $3.2 billion of common shares during the last three quarters of 2013, and to buyback up to an additional $1 billion in the first quarter of 2014.
The company also expects to repurchase about $800 million of common shares during the first quarter of 2013 under its 2012 capital plan.
- Capital One will increase its quarterly dividend on its common stock from the current level of $0.05 per share to $0.30 per share.
- Wells Fargo plans a dividend of $0.30 per share for the second quarter of 2013, and increase common stock repurchase activity for 2013 from the prior year level.
Bank of America closed Thursday at $12.11, up 0.41%, on a volume of 113 million shares. In after hours, the stock gained 3.4%. Goldman Sachs closed at $154.02, up 1.39%, on a volume of 3.9 million shares. In after hours, the stock was up 2.27%. JPMorgan closed at $51.00, up 1.67%, on a volume of 26 million shares. In after hours, the stock fell 1.98%. BB&T Corp. closed at $31.73, up 0.51%, on a volume of 3.7 million shares. In after hours, the stock dropped over 3%.
by RTT Staff Writer
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