This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Expect 'Gradual' Increase in Capital Returns Following Bank Stress Tests: Goldman

NEW YORK (TheStreet) -- A much-awaited catalyst for bank stocks is finally here.

After the market close on Thursday, the Federal Reserve will release the results of its 2013 bank stress tests, assessing whether the nation's 19 largest banks would be able to withstand a significant deterioration in economic conditions.

Then, on March 14, the regulator will reveal which of the 19 largest banks will be allowed to raise dividends or repurchase shares.

Banks will have to show that they can absorb substantial losses under adverse scenarios, pay out dividends or buy back shares and still maintain Tier 1 common equity ratios of at least 5%.

The Fed's "severely adverse" scenario features an unemployment rate of 12%, a decline in GDP of 5% between the third quarter of 2012 and 2013 and a 20% decline in housing and commercial real estate prices by the end of 2014.

For the first time, banks will have the option of lowering their capital return requests before the results are officially released to improve their chances of winning approval.

Read more on how the tests are structured in Bank Stress Tests are Cruel But Fair.

Goldman Sachs analysts said in a report Monday that almost all banks undergoing the annual review will announce higher capital returns in 2013, given that capital levels are higher than last year, loan books have been further de-risked and the stressed economic scenarios are less severe compared to last year.

Still, "investors should expect gradual, not outsized, increases in capital return" the analysts said. The management commentary at most banks has suggested that they will be conservative in their capital return requests.

"Management teams do not appear to view 'taking a mulligan' as a viable option (i.e., resubmitting their CCAR request with lower capital payouts after their original plan was rejected by the Fed), as they believe a public failure would reflect poorly on their risk management practices and perhaps damage their relationship with regulators," the analysts said.

Banks have indicated that they would like to increase dividend payout ratios before opting to buy back more shares.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,881.32 -104.29 -0.61%
S&P 500 1,962.80 -10.03 -0.51%
NASDAQ 4,392.8570 -26.1770 -0.59%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs