NEW YORK (
) -- A separate round of bank stress tests for medium-sized banks could cause some pain for investors, according to Sterne Agee analyst Todd Hagerman.
has already been conducting annual stress tests for bank holding companies with total assets of more than $50 billion. The Fed, along with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, will require banks with over $10 billion in total assets to stress test themselves, "in a broad range of scenarios from an individual business-line to enterprise-wide perspective," according to Hagerman, who highlighted five banks "that are potentially more at risk" for regulatory actions, that could include dividend cuts for two of the names.
The banks will be expected to hand in their stress test results to their primary regulators by Jan. 5, 2013.
Sterne Agee confined its analysis to banks with between $8 billion and $50 billion in total assets, since the Federal Reserve's stress tests already covered bank holding companies with over $50 billion in assets.
Hagerman said that "banks closer to $50 billion with high payout ratios, low profitability levels, low capital levels, outsized concentrations (especially in commercial and construction)," high ratios of problem loans to total capital and reserves, "and high loan/deposit ratios are more at risk for regulatory action from the stress test than those closer to the $10 billion threshold."
In Sterne Agee's analysis, the firm "included equal weightings on all metrics except for capital," for which a double weighting was applied, using the ratio of tangible common equity to total assets.
Here are the five banks subject to the new regulatory round of stress tests that Hagerman considers "potentially more at risk," counting up by Sterne Agee's stress test risk ranking: