NEW YORK (TheStreet) -- The Federal Reserve will announce the results of its annual stress tests Thursday afternoon, and this year's results may be a whole lot more interesting than last year's, especially for Citigroup (C - Get Report).
The stress tests are a two-part process. The first -- the results of which will be announced Thursday afternoon -- measures large banks' ability to remain well capitalized through a "severely adverse" economic scenario, which assumes an increase in the U.S. unemployment of four percentage points, with the unemployment rate peaking at 11.25% in mid-2015. The scenario also includes a decline in real U.S. GDP of nearly 4.75% through the end of 2014, a 50% decline in equity prices and a 25% decline in home prices.
The severely adverse scenario also has international components, including recessions Europe and Japan, and slowing growth in Asia. For the U.S.-owned holding companies being tested, this part of the scenario is most important for Citigroup, which derives the majority of its revenue and earnings from outside North America.
The second part of the stress tests is the Comprehensive Capital Analysis and Review (CCAR), which applies banks' plans to deploy excess capital through dividend increases, stock buybacks and/or acquisitions to the same "severely adverse" scenario. For bank-stock investors, CCAR is the more important part of the stress-test process. The Fed will announce those results on March 26, with most of the stress-tested banks expected to announce dividend increases and/or stock buyback plans the same day.The New Guys The Fed this year has increased the number of banks going through the two-part process. The first part is known as the Dodd-Frank stress test, named after the massive Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama in 2010. The first major difference from last year is the addition of 12 more banks to this year's test group, bringing the total to 30. The new additions to the group include Discover Financial Services (DFS) and Northern Trust (NTRS) of Chicago, as well as four regional bank holding companies and six foreign-owned bank holding companies. Here are the regional banks new to this year's Dodd-Frank stress tests:
- Comerica (CMA) of Dallas.
- Huntington Bancshares (HBAN) of Columbus, Ohio.
- M&T Bank (MTB) of Buffalo, N.Y.
- Zions Bancorporation (ZION) of Salt Lake City.
- BBVA Compass Bancshares, held by Banco Bilbao Vizcaya Argentaria, SA BBVA
- BMO Financial, held by Bank of Montreal (BMO).
- HSBC North America Holdings, a subsidiary of HSBC (HSBC).
- RBS Citizens Financial Group, held by Royal Bank of Scotland (RBS).
- Santander Holdings USA, a subsidiary of Banco Santander, SA (SAN).
- UnionBanCal, which is held by Mitsubishi UFJ Financial Group.
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