Bank of America: Stress Test Anticipation Winners
The broad indexes all ended with slight gains, as the Dow Jones Industrial Average
The Labor Department on Thursday said initial unemployment claims for the week ended March 2 declined to 340,000 from an upwardly revised 347,000 the previous week. Economists on average were expecting new claims to come in at 352,000, according to Zacks. This is the third time in four weekly reports where levels came in below 350,000.
The four-week moving average for initial jobless claims was 348,750, declining 7,000 from the prior week's 355,750. Economists were expecting claims to rise to 355,000.The KBW Bank Index (I:BKX) was up over 1% to close at 56.27, as investors waited for the Federal Reserve to announce the results of its annual stress tests for the 19 largest U.S. bank holding companies, scheduled for 4:20 p.m. EST. The stress tests gauge the big banks' ability to withstand a deep recession beginning this year, while remaining well-capitalized with Tier 1 common equity ratios of at least 5.0%. This year's "severely adverse scenario" includes a 4% increase in the unemployment rate during 2013, along with 5% negative GDP growth, a 50% decline in equity prices and a 20% decline in real estate prices. What may be confusing for investors in this year's stress test process is the Federal Reserve's decision to hold off on announcing the results of the 2013 Comprehensive Analysis and Review (CCAR) until March 14. The CCAR applies the stress test scenarios to banks' capital plans, meaning that investors have to wait another week until the banks announce dividend increases and/or plans to buy back shares through the first quarter of 2014.
Bank of America
Shares of Bank of America have returned 6% this year. The shares returned 110% in 2012, which was only a partially recovery from an epic 58% decline during 2011. The shares are down 7% since the end of 2010. Bank of America's stock trades for 0.9 times tangible book value, and for 9.5 times the consensus 2014 earnings estimate of $1.29 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $1.00.
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