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 All of the big banks except for Zions Bancorp <ZION.O> stayed above
the 5 percent requirement for top-tier capital in the latest round
of stress tests.
The tests aim to show how banks would weather a financial collapse
similar to the 2007-2009 crisis. Banks had to show how they would
cope with a halving of the stock market, and the eight largest banks
had to weigh the impact of the default of their biggest trading
counterparty.
"While capital is certainly better than it has been in past years,
these firms certainly are subject to drops in capital and earnings
when subject to severe stress," said John Corston, a director in
Deloitte's regulatory group.
Several firms appeared to disagree with the Fed's scores. Bank of
America <BAC.N> and Wells Fargo <WFC.N> released the results of
internal stress tests that showed them performing better than they
did under the regulators' tests.
Stress tests are closely watched by financial markets as a sign of
the industry's health, and also because the Fed can reject banks'
plans to return capital to shareholders if they think the banks are
not strong enough to carry them out.
European regulators plan to conduct their own stress tests later
this year, following a broad review of the asset quality of banks on
the continent.
The Fed will announce on March 26 which banks' plans to pay
dividends or buy back shares were approved.
CAPITAL PLAN SPECULATION
For the results released on Thursday, the Fed assumed banks would
keep dividends at their current levels and buy back no shares. This
release sets off several days of speculation about whether banks
with relatively low capital ratios will be allowed to increase
dividends.
"The only results that are more nerve racking than stress test
results for bankers are their bonus results," said Dan Ryan, head of
PricewaterhouseCoopers's financial services advisory practice.
"Although almost every bank came above the capital floor in today's
results, we think two to four won't be able to satisfy the Federal
Reserve next week that their planned capital actions are
appropriate," he said.
Zions was the only bank to miss the minimum, with a tier 1 capital
ratio of 3.5 percent in the most severe stress scenario. A spokesman
for Zions was not immediately available for comment.
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Zions said last month that it expected to resubmit its capital plan
due to the sale of some securities that contributed to losses under
the toughest stress scenario.
The other 29 banks stayed above the minimum levels. But M&T Bank <MTB.N>
came in relatively low, at 5.9 percent, and Bank of America's <BAC.N>
tier 1 ratio was 6 percent.
Bank of America, however, released its own stress tests that showed
its capital ratio at a much higher 8.6 percent. A spokesman for the
bank declined to comment.
Wells Fargo also released internal test results that were higher
than the marks it received from the Fed.
Bank of New York Mellon <BK.N>, Discover Financial Services <DFS.N>
and State Street <STT.N> had the highest capital ratios. Discover
announced shortly after the release on Thursday that it planned to
increase its quarterly dividend.
Capital ratios are not always clear indicators of whether the Fed
will approve a bank's capital plan. Last year, regulators directed
JPMorgan Chase <JPM.N> and Goldman Sachs <GS.N> to redo their
proposals due to concerns about their capital planning processes.
The group of 30 banks' aggregate tier 1 common capital ratio dipped
to 7.6 percent under the toughest stress scenario. That ratio was
5.5 percent at the beginning of 2009, the Fed said.
This was the first year that Zions and 11 other banks, among which
were Comerica <CMA.N> and Discover, participated in the full stress
test regime.
The other 18 banks, among which were JPMorgan, Citigroup <C.N> and
Morgan Stanley <MS.N>, participated in previous rounds. Together,
the 30 banks accounted for about 80 percent of total banking assets
in the United States, the Fed said.
(Reporting by Emily Stephenson, additional reporting by Peter
Rudegeair and David Henry in New York; editing by Douwe Miedema,
Leslie Adler and Bernard Orr)
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