Capital One's stock closed at $75.88 and Wells Fargo closed at $49.10.
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Also on Thursday, the Department of Labor said initial unemployment claims for the week ended March 22 came in at a seasonally adjusted 311,000, down 10,000 from 321,000 the previous week. Economists had expected new claims to come in at 322,000. The four-week moving average for unemployment claims declined by 9,500 to 317,750.
The KBW Bank index (I:BKX) was down 1.3% to 71.07, with all 24 index components seeing declines, except for Capital One, Wells Fargo and JPMorgan Chase, which was up slightly to close at $59.92.
The major banking industry news was the completion of the Federal Reserve's two-part annual stress tests for the 30 largest U.S. banks. The Comprehensive Capital Analysis and Review incorporated banks' submitted plans to deploy capital into the same "severely adverse" economic scenario that was run in the first round of stress tests, completed last week. The Fed approved 25 of the 30 banks' capital plans.
The regulator objected to the plans submitted by Citigroup (C), Zions Bancorporation (ZION) of Salt Lake City, and to plans submitted by three foreign-held bank holding companies, including HSBC North America Holdings (a unit of HSBC (HSBC)), RBS Citizens Financial Group (held by Royal Bank of Scotland (RBS)) and Santander Holdings USA (held by Banco Santander (SAN)).
The rejection of Zions Bancorporation's capital plan wasn't particularly surprising, since Zions was the only bank to fail the first round of stress tests last week with a minimum Tier 1 common equity ratio of 3.6% through the Fed's nine-quarter test scenario. The minimum ratio needed to pass was 5.0%. Following that failure, Zions chose not to "take a mulligan" and submit a revised capital plan, but to stick with its original plan that included a common equity raise of $400 million. That raise would have raised the bank's minimum Tier 1 common equity ratio through the stress-test scenario to 4.5%. Zions plans to submit a revised capital plan to the Federal Reserve by April 30.
Please see Citigroup and the 'Straw That Broke the Camel's Back' for details on Citi's CCAR failure on "qualitative" grounds and the company's reaction, and Here's What Wall Street's Saying About the Fed's Capital Plan Reviews for sell-side analysts' opinions on which banks fared best and worst from the stress tests.
Capital One passed the first round of stress tests with a solid minimum Tier 1 common equity ratio of 7.8%. The company late Wednesday announced it would maintain its quarterly dividend of 30 cents a share and that the Fed had approved its plan to buy back up to $2.5 billion in shares from the second quarter of 2014 through the first quarter of 2015.
KBW earlier this week estimated that Capital One would complete $956 million in common-share buybacks from the second quarter of 2013 through the first quarter of 2014.
Janney Capital Markets analyst Sameer Gokhale in a note to clients Thursday said Capital One and American Express (AXP) were the banks with the "biggest upside surprises" for total capital deployment, including buybacks and dividend payments. The analyst estimated Capital One's combined repurchases and dividend payouts will come to $3.2 billion, compared to his estimate of $2.4 billion, and that AXP's combined capital deployment would total $6.5 billion, above his estimate of $5.1 billion.
Capital One's shares are down 0.5% this year, following a 34% return during 2013. The shares trade for 1.9 times their reported Dec. 31 tangible book value of $42.47, and for 1.8 times the consensus 2015 earnings estimate of $7.29 a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $6.81.
Wells Fargo on Wednesday said it had received approval from the Federal Reserve to raise its quarterly dividend to 35 cents from 30 cents, and "a proposed increase in common stock repurchase activity for 2014 compared with 2013." The company during 2013 bought back $5.1 billion in common shares, although the company's share count only declined slightly, because of stock issuance for employee compensation.
Wells Fargo's shares have risen nearly 9% this year, following a 37% return during 2013. The shares trade for 2.1 times tangible book value and for 11.5 times the consensus 2015 EPS estimate of $4.26. The consensus 2014 EPS estimate is $4.04.