NEW YORK (
) -- Investors are looking for most of the large stress-tested banks to increase their dividend payouts and authorize share buybacks after the
announces the results of its stress tests Tuesday afternoon, but there are
three large holding companies
hoping for permission to repay federal bailout funds.
The Fed is set to publicly disclose an unusually detailed set of stress test results today at 4:30, with most of the largest U.S. bank holding companies having submitted plans that include an increased return of capital to investors, through higher dividends and share buybacks.
In order to gain the Fed's permission for an increased return of capital to investors, the banks need to prove that they could maintain Tier 1 common equity ratios of at least 5%, while increasing their return of capital and suffering through a dire economic scenario that includes real GDP contracting "sharply through late 2012, with the unemployment rate reaching a peak of just over 13 percent in mid-2013," while also assuming "that U.S. equity prices fall by 50 percent from their Q3 2011 values through late 2012 and that U.S. house prices fall by more than 20 percent through the end of 2013."
That's a whopper of a stress test scenario, which also assumes "foreign real GDP growth is also assumed to contract, with growth slowdowns in Europe and Asia in 2012."
So investors can be pretty sure that the Fed won't have to change its mind about approving any dividend increases or share buybacks.
(JPM - Get Report)
on Tuesday announced that the Federal Reserve "not object to the Firm's proposed capital distributions submitted pursuant to" the stress tests, and that it would raise its quaterly dividend payout by a nickel, to 30 cents a share.
JPMorgan also said it had "authorized a new $15 billion equity repurchase program, of which up to $12 billion is approved for 2012 and up to an additional $3 billion is approved through the end of the first quarter of 2013."
JPMorgan CEO James Dimon said the company was "pleased to be in a position to increase our dividend and to establish a new equity repurchase program," and expected "to generate significant capital and deploy that capital to the benefit of our shareholders." The company said the timing of the buybacks "will be consistent with the Firm's capital plan and will depend on various factors, including market conditions."
Bank of America
(BAC - Get Report)
didn't include plans to increase dividends or authorize buybacks as part of its stress test submission to the Federal Reserve.
The Wall Street Journal reported Tuesday afternoon that Bank of America had also passed the stress tests, no doubt causing investors to breathe a sigh of relief, as the stress tests included hypothetical mortgage putback losses, based on the real information provided by the holding companies and factoring in that brutal additional 20% housing price drop included in the adverse economic scenario.
KBW's bank research team on Monday had said in a report that out of the 24 bank holding companies subject covered by the firm and subject to the stress tests, "most will weather the storm," with Basel I Tier 1 common equity ratios above 5% under the stress test scenario, except for Bank of America, which could wind up with an estimated Tier 1 common ratio of 4.66%, and Regions Financial, which could end up with an estimated Tier 1 common ratio of just 4.06%.