Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



25 Banks Went to the Head of the Class This Week

In the banking sector, this week was dominated by Wednesday's release of the Comprehensive Capital Analysis and Review (CCAR, for those who want to conserve their oxygen). This was the second part of the Federal Reserve's stress tests for this year, and it mattered -- it was the component in which the Fed gave its thumbs up or down to banks' capital allocation proposals.

The regulator had no objection to the plans of 25 out of the 30 tested banks. That was great news... unless, of course, you're a shareholder in one or more of the miscreants. The five offenders weren't small fry, either -- a notable inclusion was Citigroup (NYSE: C  ) , sharing a jail cell with the American wings of European lenders Banco Santander, HSBC, and RBS, plus domestic regional Zions Bancorporation.

All five are, in the Fed's words "required to resubmit their capital plans... following substantial remediation of the issues that led to the objections." Back to the drawing board, in other words.

Skipping to the sunny side of the street, Citi's successful incumbent peers JPMorgan Chase, Wells Fargo (NYSE: WFC  ) , and Bank of America (NYSE: BAC  )  all have the go-ahead for their plans. For JPMorgan Chase, this means an increase of its quarterly dividend to $0.40 (from the most recently declared $0.38), and the launch of a $6.5 billion common share buyback program.  The dividend is subject to board of director approval but really, who's going to object to the idea?

Ditto for Wells Fargo, which wants to lift its quarterly payout to $0.35 per share (its latest was $0.30).It's also going the buyback route, increasing its initiative to the tune of 350 million shares, for a total of a whopping $17 billion or so. Wells Fargo has the money, no doubt, but it raises the question of whether this is the best way to spend it.

Bank of America is going to quintuple its dividend. This sounds a lot more impressive than saying "boost its wafer-thin $0.01 distribution by $0.04 per share." Still, an increase is an increase, and Bank of America's shareholders have been hungry to get one for quite a while. The lender's board has authorized a $4.0 billion share buyback plan, which sounds a lot saner than Wells Fargo's $17 billion-plus shopping spree.

Then again, Bank of America has other uses for its mattress money. On Wednesday (yes, Hump Day was particularly busy this week), the company announced it agreed to a settlement with the Federal Housing Finance Agency -- the conservator of mortgage guarantors Freddie Mac and Fannie Mae. FHFA had filed four lawsuits against Bank of America and associated entities, claiming that they made fraudulent claims about some of their mortgage-backed securities.

The settlement will see the company pay Freddie and Fannie roughly $6.3 billion in cash, plus take around $3.2 billion worth of those MBSes off their hands. Bank of America estimates that this will slice its Q1 pre-tax income by $3.7 billion, equating to $0.21 per share net. Gulp.

That aside, the news was overwhelmingly good for the sector this week. That CCAR tally of 25 out of 30 is a very good score; just ask the shareholders who will soon get more bang for their buck when those new dividends hit their wallets.

Did you know about this dividend "loophole?"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (2) | Recommend This Article (0)

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.

  • Report this Comment On March 31, 2014, at 6:46 PM, RobertBrad wrote:

    The criticism by Fed is positive for the economy as the banks will improve the criteria to meet the demands of Fed but

  • Report this Comment On April 02, 2014, at 2:25 AM, TMFVolkman wrote:

    RobertBrad, I'm not sure it's necessarily positive, but no doubt it'll cause those slapped on the wrist (hello, Citigroup!) to be more conservative in their internal estimates going forward. That could benefit them if they do it right, in my opinion.

Add your comment.

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: 2895183, ~/Articles/ArticleHandler.aspx, 9/2/2015 10:39:12 PM

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...

Eric Volkman

Eric has been writing about stocks and finance since the mid-1990s, when he lived in Prague, Czech Republic. Over the course of a varied career, he has also been a radio newscaster, an investment banker, and a bass player in a selection of rock and roll bands. A native New Yorker, he currently lives in Los Angeles.

Today's Market

updated 1 hour ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 4:01 PM
BAC $15.85 Up +0.32 +2.06%
Bank of America CAPS Rating: ****
C $51.75 Up +0.81 +1.59%
Citigroup Inc CAPS Rating: ***
FNMA $2.35 Up +0.00 +0.00%
Fannie Mae CAPS Rating: **
JPM $62.57 Up +1.12 +1.82%
JPMorgan Chase & C… CAPS Rating: ****
WFC $51.99 Up +1.00 +1.96%
Wells Fargo CAPS Rating: *****