Updated with early market action and comment from Guggenheim Securities analyst Marty Mosby.
NEW YORK ( TheStreet) -- The Federal Reserve has finally completed its 2013 stress test process, except for a few banks that will have to submit revised capital plans by the end of the third quarter.
The big surprise late on Thursday was the Federal Reserve's rejection of BB&T's (BBT) capital plan. BB&T of Winston-Salem, N.C., is in strong shape and weathered the financial crisis quite well, considering its geographical footprint. The Fed said that BB&T's plan was rejected based on "a qualitative assessment conducted by the Federal Reserve." BB&T's shares were down over 2% in early trading, to $30.97.
Guggenheim Securities analyst says that "we believe BBT was penalized for requesting a dividend payout in excess of 30% of earnings. The Fed had warned banks that any requests that exceeded 30% of earnings on dividends or 100% of earnings in total capital distributions would receive increased scrutiny and they backed up this warning by making BBT this year's example.""This was a surprise, since BBT passed the quantitative part of CCAR with a 7.8% post stress loss capital ratio and had sailed through previous reviews," Mosby says, adding that "BBT is not approved to execute any incremental capital distributions, including merger & acquisition requests," until it's revised capital plan is approved.
The first part of the stress tests was the Dodd-Frank Act Stress Test (DFAST) for 18 large financial holding companies. These tests gauged big banks' ability to withstand a "severely adverse scenario," while remaining well-capitalized with minimum Tier 1 common equity ratios of 5.0% through the end of 2014. The severely adverse scenario included an increase in the U.S. unemployment rate to over 12% in the second half of 2013, with a 50% drop in equity prices and a 20% decline in real estate prices. DFAST was completed on March 7, with only Ally Financial failing to remain well-capitalized under the Fed's projections. For the 18 largest stress-tested banks, the second part of the process was the Comprehensive Capital Analysis and Review (CCAR), completed late on Thursday. CCAR applied the same recession scenario to the banks' submitted plans to deploy excess capital through dividend increases, share buybacks or acquisitions. When announcing the CCAR results, the Fed also rejected Ally Financial's capital plan "both on quantitative and qualitative" grounds. Both BB&T and Ally need to submit revised capital plans by the end of the third quarter. Other large banks with total assets of over $50 billion were subjected to a similar set of stress tests, called the Capital Plan Review (CapPR), which included the banks' capital plans. The Fed didn't publicly announce the results of these tests, but the tested banks began announcing the results of the tests, along with plans to deploy excess capital.
These banks announced plans to deploy excess capital, beginning in the second quarter through the first quarter of 2014, in excess of many analysts' forecasts:
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV