Look Beyond Banks for Market Opportunities, Analyst Says

Katherine Ross

Late Thursday, the Federal Reserve capped buybacks and dividend payments for the country's biggest lenders following its latest round of stress tests.

The Fed, which has gauged the health of the biggest U.S. banks each year since the global financial crisis, added a so-called 'sensitivity" test to its annual check-up, allowing it to measure the ability of 34 domestic lenders to weather an extreme 'double-dip' recession triggered by the coronavirus pandemic.

Under that "W-shaped" scenario, the Fed said, banks could be on the hook for a collective $700 billion in bad loan losses and a 2.5% fall in aggregate capital ratios.

"In light of these results, the Board took several actions following its stress tests to ensure large banks remain resilient despite the economic uncertainty from the coronavirus event," the Fed said in a statement. "For the third quarter of this year, the Board is requiring large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income. The Board is also requiring banks to re-evaluate their longer-term capital plans."

Jeff Marks, senior portfolio analyst with Jim Cramer's Action Alerts PLUS portfolio, said that the portfolio looking beyond the banks for better opportunities in the market right now.

You can follow Katherine Ross on Twitter @byKatherineRoss.

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