The first part of the stress tests was the Dodd-Frank Act Stress Test (DFAST) for 18 large financial holding companies. These tests gauged big banks' ability to withstand a "severely adverse scenario," while remaining well-capitalized with minimum Tier 1 common equity ratios of 5.0% through the end of 2014. The severely adverse scenario included an increase in the U.S. unemployment rate to over 12% in the second half of 2013, with a 50% drop in equity prices and a 20% decline in real estate prices. DFAST was completed on March 7, with only Ally Financial failing to remain well-capitalized under the Fed's projections. For the 18 largest stress-tested banks, the second part of the process was the Comprehensive Capital Analysis and Review (CCAR), completed late on Thursday. CCAR applied the same recession scenario to the banks' submitted plans to deploy excess capital through dividend increases, share buybacks or acquisitions. When announcing the CCAR results, the Fed also rejected Ally Financial's capital plan "both on quantitative and qualitative" grounds. Both BB&T and Ally need to submit revised capital plans by the end of the third quarter. Other large banks with total assets of over $50 billion were subjected to a similar set of stress tests, called the Capital Plan Review (CapPR), which included the banks' capital plans. The Fed didn't publicly announce the results of these tests, but the tested banks began announcing the results of the tests, along with plans to deploy excess capital.
These banks announced plans to deploy excess capital, beginning in the second quarter through the first quarter of 2014, in excess of many analysts' forecasts:
While the two banks aren't really "losers," in that their capital plans were not rejected outright by the Federal Reserve, JPMorgan Chase ( JPM) and Goldman Sachs ( GS) both received "conditional" approvals of their capital plans by the Federal Reserve. That can be perceived as a negative for both companies, but especially for JPMorgan Chase, which is feeling the heat from the Senate Committee on Investigations, led by Senator Carl Levin (D., Mich.), which is holding a hearing Friday on the company's " London Whale" hedge trading losses first announced last May. Despite having to resubmit its capital plan, JPMorgan announced an increase in its quarterly dividend to 38 cents a share from 30 cents, and said it would repurchase up to $6.0 billion in shares through the first quarter of 2014. JPMorgan's shares were down over 3% in early trading, to $49.31. Goldman Sachs CEO Lloyd Blankfein said in a statement the firm was "pleased to continue to have the flexibility to return capital to shareholders," but the company released no further details on its capital plan. Goldman's shares were down 1% in early trading, to $152.83. While Ally Financial and BB&T had their capital plans rejected outright, the Fed partially objected to the capital plan submitted by Zions Bancorporation ( ZION) of Salt Lake City. The company announced that the regulator "to certain proposed capital actions, it did not object to key capital actions relating to the reduction of the cost and quantity of Zions' non-common capital." The company was approved to repurchase $600 million in preferred and trust preferred securities and said it could request permission to redeem another $200 million in preferred stock in its revised capital plan. Jefferies analyst Ken Usdin said in a report late on Thursday that "ZION's quarterly dividend appears to stay at $0.01." Shares of Zions Bancorporation were down 2% in early trading, to $25.32. SunTrust ( STI) of Atlanta said it would increase its dividend to 26 cents a share from 24 cents and buy back up to $2.1 billion in common shares. The dividend increase "came in below our estimate of an $0.08 dividend increase (to $0.13), while buybacks of $150 million were below our estimate of $274 million," Mutascio wrote, adding that "as a result, the overall payout of 25.8% came in below our estimate of 38.3%." SunTrust's shares were down 2% in early trading, to $29.15. -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn