Citigroup, Morgan Stanley are Buyback Wildcards

NEW YORK ( TheStreet) -- Banks are expected to comfortably pass the Federal Reserve's annual stress test but estimates of just how much capital the winners of the test will return to shareholders vary widely.

Analysts seem to agree that the healthiest of the big banks including JPMorgan Chase ( JPM) and Wells Fargo ( WFC) are most comfortably placed in terms of both capital and profitability to return significant amount of capital to banks.

Yet, with JPMorgan's focus on reaching new requirements on capital "sooner" rather than later- as early as end of 2013, according to their latest presentation- analysts remain uncertain on just how much the bank will end up spending in share repurchases.

For instance, while Bank of America Merrill analysts project a payout of 50%, RBC Capital analysts see a total payout of as much as 74%.

Wells Fargo, too, is active on the deal front, although it has said it would return more capital to shareholders.

So it is hard to know at this point just how much of a dividend increase or buyback will be good enough to please the Street.

>> 4 Dividend and Buyback Read Bank Stocks

"While harsh stress-testing from the Fed was always a risk to results, a risk that we believe is less recognized by the market is that banks would be conservative with regards to capital return requests, for fear of being "rejected", Erika Penala, analyst at Bank of America Merrill Lynch wrote on Tuesday, highlighting that the stress tests could disappoint.

Citigroup ( C) and Morgan Stanley ( MS)may be potential wildcards in the stress tests, UBS analysts wrote on Thursday.

Shares of Citigroup have rallied more than 25% in 2012 on expectations that the bank will start returning more capital to shareholders.

But the market might still be underestimating the potential shareholder goodies from Citigroup, according to UBS analyst Brennan Hawken.

The bank could spend $3 billion in buybacks, an estimate roughly in line with consensus, but added that it only represents about one quarter of 2012 projected earnings. "Therefore, we believe Citi's2012 share repurchase could surprise to the upside," he wrote in a note Thursday.

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