This Day On The Street
Continue to site
ADVERTISEMENT
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

2014 Stress Tests Bring New Complications for Big Banks

"Generally, these shocks involve large and sudden changes in asset prices, rates, and spreads, reflecting general market dislocation and heightened uncertainty," the Fed said on Friday. The regulator will not announce the parameters of the global market shock component of the stress tests until Nov. 15. This component of the tests and CCAR will apply to the "big six" U.S. banks, including JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley.

Despite the added complications, KBW analyst Frederick Cannon expects this year's CCAR process -- the critical one for investors, since it determines how much gravy they will get, through dividend increases and share buybacks through the first quarter of 2015 -- "to be somewhat smoother for past CCAR filers."

The Federal Reserve in March rejected BB&T's (BBT) capital plan on qualitative grounds, while granting "conditional" approval to the capital return plans of JPMorgan Chase and Goldman Sachs. All three companies later submitted revised plans that were approved by the Fed, with BB&T of Winston-Salem, N.C., making no increase to its dividend and planning no share buybacks through the first quarter of 2014.

Cannon in a client note on Sunday wrote that "For new CCAR filers, we expect the waters could get a bit choppy as banks navigate around the Fed's and investors' expectations." The new group of banks being subjected to the Fed's stress tests and CCAR this year includes Comerica (CMA) of Dallas, Huntington Bancshares (HBAN) of Columbus, Ohio, and card lender Discover Financial Services (DFS).

Of course there's no way of predicting if any of the banks will see their capital plans rejected by the Fed, and we won't know until Nov. 15 just how brutal the global market shark scenario will be. As part of the process, the banks subjected to CCAR are allowed to make a one-time reduction in their capital deployment plans, based on feedback from examiners during the process.

Jefferies analyst Ken Usdin expects the banks to "perform well from a qualitative perspective," because starting points for the Fed's economic scenarios are better, as U.S. home and equity prices have increased over the past year, while banks' balance sheets are "cleaner," with lower problem loans. "As a result, we believe any slip-ups will likely be due to qualitative factors," he wrote in a note to clients on Sunday. Usdin added that he expects capital payouts "to grow modestly for most," of the banks subject to CCAR.

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
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!
SYM TRADE IT LAST %CHG
C $53.20 0.00%
JPM $63.24 0.00%
AAPL $127.98 0.30%
FB $83.74 0.78%
GOOG $537.56 0.41%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs