Stress tests aced
But Fed nicks Morgan Stanley’s plan
Most of Wall Street gets to breathe a sigh of relief, while a few have grief.
Thirty banks passed the Federal Reserve’s “stress test” with flying colors on Wednesday, sparking tens of billions in stock buybacks and an avalanche of dividends for investors.
The results of the yearly review are a highly anticipated benchmark, since they forecast how well they’d perform during severe market downturns. Banks that pass are rewarded by having their capital plans approved.
But the results weren’t all rosy.
The Fed failed Deutsche Bank and Santander Holdings for “material unresolved supervisory issues that critically undermine its capital planning process,” the central bank said in the summary of its find- ings. It’s the second straight year the two banks have failed.
Morgan Stanley was the only US bank to pass with an asterisk. It got provi- sional approval for its capital plan, even though there were “shortcomings” in how the bank planned for financial catastrophes, the Fed said.
Morgan has to resubmit its plans by the end of the year, and can have further capital redistribution plans reined in if they don’t satisfy its regulators.
This year, analysts were on the lookout for Bank of America and Citigroup to pass the tests, since those two lenders have struggled to pass in previous years.
Wall Street didn’t waste time in announcing its capital plans.
JPMorgan Chase, the largest US bank, announced $10.6 billion in buybacks. Citigroup will buy back $8.6 billion in stock and hiked its dividend to 16 cents a share. Bank of America pumped up its dividend to 7.5 cents a share and authorized a $5 billion buyback. And Morgan Stanley increased its dividend to 20 cents a share and plans to buy back $3.5 billion in stock.