Bank of America Is the Winner, and JPMorgan the Loser

On the back of yesterday's gains, stocks opened moderately lower this morning, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) down 0.43% and 0.42%, respectively, as of 10:05 a.m. EDT. Today may see the end of the Dow's 10-day winning streak, while the S&P 500 is slipping away from its October 2007 high of 1,565 after coming within two points of the record yesterday.

Banks: Two big winners and two big losers
Yesterday, the Federal Reserve announced the results of its review of big banks' capital plans. The review is part of the Fed's annual Comprehensive and Capital Analysis and Review, which includes the so-called "stress tests." These results have immediate implications for shareholders, as the capital plans submitted to the Fed include banks' proposals for returning capital to investors via dividends and share repurchases.

The two big winners today are Dow component Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) . The former intends to buy back $5 billion in common shares and redeem approximately $5.5 billion in preferred shares (Berkshire Hathaway's, presumably). The latter has plans for a $1.2 billion share buyback (Citigroup's plan was already released last week). For B of A and Citi, these are the first share buybacks of any substantial size since the financial crisis took hold and the banks required government support. However, note that both are maintaining their dividend at a nominal $0.01 per share. Bank of America is up more than 3% on the news, while Citigroup is down 0.6%.

Among the top six banks, JPMorgan Chase (NYSE: JPM  ) is undoubtedly today's big loser, followed closely by Goldman Sachs (NYSE: GS  ) . Although the Fed did not object to their capital plans, it is requiring them to resubmit plans by the end of the third quarter, citing "weaknesses in their capital planning process." In estimating their potential losses under a doomsday scenario, both banks vastly undershot the Fed's own estimates, with JPMorgan producing a laughable figure of $200 million compared to the Fed's $32.3 billion.

JPMorgan will raise its dividend from $0.30 per share to $0.38. However, it is slashing its share buyback program to $6 billion from $15 billion in 2012 in order to preserve capital and meet capital-ratio requirements faster. The bank is also receiving unwanted attention today: The U.S. Senate's Subcomittee on Investigations has released a 307-page report on the "London Whale" trading loss fiasco, and JPMorgan executives will face difficult questions at a Senate hearing today.

JPMorgan stock has dropped 3.2% so far today, while Goldman Sachs has lost a more moderate 0.4%.

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Comments from our Foolish Readers

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  • Report this Comment On March 15, 2013, at 11:51 AM, JosephConway wrote:

    It's clear the banks will appear to do well as long as regulators have no 'stones' and do not raise the Fed Interest Rate. There continues to be no investigation of 2006-10 Criminal Securities Fraud by ig Bank C-level execs - many still in the 'industry' or involved in the government. This makes the stock market look just fine. Add to that the Fed's and the banks' refusal to acknowledge the Derivatives issue. And yes the market looks like a buy-in option.

    However, the reality is the .0001% & their .0009% of predator minions have destroyed the U.S. economy and democracy with their consummate greed and cupidity. One bright day, talk about that!

  • Report this Comment On March 15, 2013, at 12:37 PM, TMFAleph1 wrote:

    What is "the Derivatives issue" that banks refuse to acknowledge?

  • Report this Comment On March 15, 2013, at 9:48 PM, TheHutMaster wrote:

    All these dirtbag criminals WILL see jail. We are coming for you Jamie, with a long probe to jame up your criminal assets.

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