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Big Banks to Get a Boost With Stress Tests in 2013

NEW YORK (TheStreet) -- Investors may see a big boost for the largest U.S. banks' shares after the conclusion of so-called stress tests next month.

The Federal Reserve will announce the results of the annual stress tests on March 7. The regulator will publish the Comprehensive Analysis and Review (CCAR) on March 14.

The CCAR is the key item for investors because it's the Federal Reserve's analysis of banks' plans to return money to investors through dividends and share buybacks. And this year promises to be sweeter than last year for two reasons: First, most of the big banks all had higher capital ratios (the percentage of a bank's capital to its risk-weighted assets). Second, banks this year are receiving feedback from the Fed during the CCAR process, allowing them to lower their capital-return plans to gain immediate approval.


Last March, Citigroup (C), SunTrust (STI) and Fifth Third Bancorp (FITB) had their initial capital plans rejected during the CCAR and had to wait until August to receive approval on their revisions. Of those three, only Fifth Third was approved for a dividend increase. Neither Citigroup nor SunTrust tried again last year for a dividend increase.

This year, banks have been free to push the envelope for initial capital plans, knowing they could immediately scale back their requests without waiting another five months for approval.


Citigroup and Bank of America (BAC) are each paying a nominal quarterly dividend of just $0.01 a share, and didn't buy back any shares during 2012. With both companies continuing to go through major transitions, opinion is mixed on the level of capital returns investors can expect this year.

JPMorgan Chase analyst Vivek Juneja, in a report Jan. 15, estimated that Citigroup would be approved to increase its quarterly dividend to $0.20 and that Bank of America would raise its quarterly dividend to $0.04. Juneja also estimated that Citigroup would be approved to repurchase $4.425 billion in common shares through the first quarter of 2014, while Bank of America would be approved to buy back $3.950 billion worth of shares.

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