Preview: Another Week, Another Banking Stress Test

During the boom of the U.S. banking system during the previous decade, investors were rewarded with hefty capital gains and massive chunks of cash in the form of common stock dividends.

As we fast forward to the present, shareholders of these banks are yearning and thirsty for a return to the cash-rich days. With the release of the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) results on Thursday afternoon, investors will learn if the largest U.S. banks will be allowed to return more capital to shareholders. Despite the upward trajectory of bank profits in recent years, banks and regulators are still haunted by memories of the massive liquidity crisis almost five years ago.

The CCAR results will detail each bank's capital positions assuming no additional capital actions plans (just like last week's Dodd-Frank stress test results), as well as account for the impact of any proposed capital action plans (increases in dividends or share repurchase) that each bank has submitted for approval. Given the stigma of banks having to cut dividends, the Fed will only approve capital plans that do not bring the bank's capital levels to a dangerously low level under a global economic downturn.

After last week's Dodd-Frank stress test results showed consistent capital ratio improvement year over year for almost every bank, investors' expectations for dividend growth and increased share repurchase capacity have crept higher. Here is a breakdown of what each bank proposed during last year's CCAR process:

Click on the name of each company to see a preview of this year's results:

                                                           The Big Four
Company Name 2012 CCAR Capital Actions
Bank of America Did not request a dividend increase or new buyback approval.
Wells Fargo Approved: Increased dividend and share buybacks.
JPMorgan Chase Approved: Increased dividend and share buybacks.
Citigroup  Denied: Increased dividend.
                                                           Regional Banks
Company Name 2012 CCAR Capital Actions
BB&T Approved: Increased dividend and redeemed trust preferred securities.
Regions Financial  Approved: Repurchase of preferred stock from TARP.
Fifth Third 

Denied: Increased dividend.
Approved: Share buybacks.

KeyCorp Approved: Share buybacks. Later increased dividend.
SunTrust  Did not request a dividend increase or new buyback approval.
PNC Financial Approved: Increased dividend and share buybacks.
U.S. Bancorp  Approved: Increased dividend and share buybacks.
                                                                  Others 
Company Name 2012 CCAR Capital Actions
Goldman Sachs  Approved: Increased dividend and share buybacks.
Morgan Stanley Approved: Use of cash on acquisition of Morgan Stanley Smith Barney.
American Express Approved: Increased dividend and share buybacks.
Bank of New York Mellon Approved: Share buyback plan. Did not request a dividend increase.
Capital One Did not request a dividend increase or new buyback approval.
State Street Approved: Increased dividend and share buybacks.

As the most talked-about bank out there, all eyes will undoubtedly be on Bank of America’s stress test results. Regardless of the outcome, there are significant challenges still ahead for this megabank, so it’s critical to have a solid understanding of the business before adding B of A to your portfolio. In The Motley Fool’s premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2310983, ~/Articles/ArticleHandler.aspx, 10/1/2014 4:29:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement