Seeking Alpha

More on Fed stress tests

  • Everybody (except Zions) passed, but among the Too Big To Fail banks, Bank of America (BAC) is the weakest performer under the Fed's severely adverse scenario, with its tier 1 common ratio dropping to 6.3%. Citigroup (C) goes to 7%, Goldman Sachs (GS) to 8.9%, JPMorgan (JPM) to 6.7%, Morgan Stanley (MS) to 7.6%, and Wells Fargo (WFC) to 8.2%.
  • The average tier 1 ratio for all banks tested is 8.4%.
  • There's not a whole lot of after-hours movement in any of the TBTF names.
  • ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, PFI, KBWB, FNCL, FINU, RWW, RYF, PSCF, FINZ
  • Full report
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Comments (7)
  • Mike Maher
    , contributor
    Comments (2764) | Send Message
     
    Does it matter who the weakest name is? In the scenario the Fed tested stocks drop 50% and GDP drops around 7% - you dont want to own any bank stocks if thats the case, even if they all pass the test.
    20 Mar 2014, 04:19 PM Reply Like
  • cohenfive
    , contributor
    Comments (17) | Send Message
     
    I agree Mike, but all of them will in theory be able to 'handle' such a disastrous move. I don't think there are any surprises here, sort of interesting how the big banks had a huge pop going into the results. Probably means some sort of dividend reinstatement for bac, but that is mostly priced into the stock at these levels imo.
    20 Mar 2014, 04:22 PM Reply Like
  • herschfields
    , contributor
    Comments (114) | Send Message
     
    Don't know, but would it mean that being the weakest in meeting the requirements of the stress test, that particular financial institution might operate at a higher leveraged position as well as a more aggressive strategy as compared to the rest of the sector? Is that not a more "lean and mean" attitude?
    20 Mar 2014, 04:38 PM Reply Like
  • DoowopDave
    , contributor
    Comments (252) | Send Message
     
    Weakest means just that. BAC should hold the dividend at 1 cent and use it's capital to buy back debt and work even harder to reduce expenses. I'm long BAC but I want to see them a lot healthier and with a good dividend, like 8-10 cents per quarter.
    20 Mar 2014, 05:01 PM Reply Like
  • Wow72
    , contributor
    Comments (584) | Send Message
     
    Im not sure what is more damaging to our economy having all that money sidelined collecting dust or having ripped it out of the economy all at once when we could least afford it..? The banks having more money doesn't make me feel any safer!
    20 Mar 2014, 06:32 PM Reply Like
  • Erik Berfenhag
    , contributor
    Comments (2) | Send Message
     
    Nice..in sweden goverment is all over the banks about having to raise tier 1 capital. "Handelsbanken" a swedish bank similar to WFC got 19,3% tier 1 capital . Remaing 3 large banks around 11-15%
    20 Mar 2014, 06:48 PM Reply Like
  • starcorral
    , contributor
    Comments (822) | Send Message
     
    Hey Janet, nobody wants the Fed to nursemaid the banks forever. They're all managed by grownups who need their p*p*s whacked on a regular basis. I like my banks fiscally responsible; I like my borrowers capable of dealing with inexpensive debt. My suggestion is to use your bully pulpit as a throttle, not as a red flag to those who use credit as a tool without which sustaining growth can't happen. More expensive money may be on the way, but that's not so bad.
    20 Mar 2014, 10:30 PM Reply Like
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