This Day On The Street
Continue to site
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

Bank of America 'Struggles' in Stress Test

Updated from 8:42 a.m. ET with morning market action and comment from Credit Suisse analyst Moshe Orenbuch.

NEW YORK (TheStreet) -- Now that the first round of the Federal Reserve's annual stress-test process is complete, the biggest loser is Zions Bancorporation (ZION - Get Report) of Salt Lake City, but Bank of America's (BAC - Get Report) results are also of concern to investors.

In the first round of stress tests -- known as the Dodd-Frank Act Stress Tests, or DFAST -- 30 large banks had to show they could remain well-capitalized, with Tier 1 common equity ratios of at least 5.0%, through a nine-quarter "severely adverse" economic scenario. The list of banks being tested grew from 18 last year, with Zions among several regional banks being added to the tests.

Zions was the only bank to fail DFAST, with a minimum Tier 1 common equity ratio of just 3.5%. Bank of America passed, but had the third weakest minimum Tier 1 common equity ratio through the nine-quarter scenario, at 6.0%.

Must Read: Zions Fails Stress Test

The second-weakest was M&T Bank (MTB) of Buffalo, N.Y., with a minimum Tier 1 common equity ratio of 5.9%. But M&T is in the midst of getting its Bank Secrecy Act and anti-money laundering compliance house in order, as it prepares to complete its long-delayed acquisition of Hudson City Bancorp HCBK of Paramus, N.J. M&T is very unlikely to request any increase in dividends or to request approval for any share buybacks in the second round of the stress tests.

Shares of Bank of America were down 1.3% in morning trading to $17.69, while Zions was down 2.7% to $32.11.

The second round of tests is the Comprehensive Capital Analysis and Review, or CCAR, which incorporates banks' plans to deploy excess capital through dividend increases, share buybacks and/or acquisitions. Those results will be announced on March. 26, with most of the tested banks making their own capital return announcements the same day.

This year's "severely adverse" scenario 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.

In addition to expanding the list of banks being tested, the Fed introduced new elements for the largest banks that are considered global systemically important financial institutions (G-SIFIs). The tests for these banks factor in the instant default of a bank's largest counterparty for trading of swaps and other derivatives.

U.S. G-SIFIs include JPMorgan Chase (JPM), Bank of America, Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS), Bank of New York Mellon (BK)and SunTrust (STI) of Atlanta.

1 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
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ZION $28.26 -1.70%
BAC $15.52 -1.40%
AAPL $111.43 1.80%
FB $92.99 0.56%
GOOG $643.55 0.69%


Chart of I:DJI
DOW 17,057.40 +6.65 0.04%
S&P 500 2,013.43 +15.91 0.80%
NASDAQ 4,830.2610 +19.4730 0.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs