TBTFs pass stress tests, but don't get an "A"

It's a sluggish day for the TBTFs after yesterday's post-close stress test results. Satiated investors may be selling the news, or perhaps the lenders didn't pass with enough flying colors.

Credit Suisse's Moshe Orenbuch's team had estimated a Tier 1 common ratio under the severely adverse scenario of 8.6% for Bank of America (BAC -1.5%), but it came in at just 6% from the Fed - only 100 basis points higher than the minimum. Citigroup (C -0.1%) - estimated at 10% - came in at 7%, JPMorgan (JPM +0.4%) - estimated at 6.5% - came in at 6.3%.

Morgan Stanley (MS -0.5%), meanwhile, missed CS's estimate by a whopping 400 basis points, while Goldman missed by 170. "Not surprisingly, the capital markets sensitive banks appear on the lower end of the range given losses associated with a large counterparty default, in addition to higher trading losses vs. regional bank peers," says Orenbuch.

Jefferies' Ken Usdin says the lower numbers confirm the "teeth" of the stress tests. "Our initial take is that discrepancies were largely driven by higher charge-off and balance sheet growth assumptions used by the Fed."


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Comments (5)
  • JamesChessing21
    , contributor
    Comments (133) | Send Message
    Without he Buffet deal BAC might have failed the Stress Test...as of today BAC nnèeds to raise more capital USD 10-15 billion to avoid another bal out / bankruptcy not if but when there is another financial melt down...dividend increase unlikely ...I am a long term shareholder and prefer to avoid another nightmare Fedobama bail out....
    21 Mar 2014, 03:41 PM Reply Like
  • chriff
    , contributor
    Comments (119) | Send Message
    You meant to say FedBush bailout.
    21 Mar 2014, 06:20 PM Reply Like
  • Hello Again 83
    , contributor
    Comments (707) | Send Message
    BAC is way overcapitalized as it is. The extreme senario of the stress test is not real and never will be. BAC will increase its dividend but I really want the the share buy back even more since stock is undervalued. When the stock is overvalued then we want the dividend.
    21 Mar 2014, 04:10 PM Reply Like
  • sethmcs
    , contributor
    Comments (3581) | Send Message
    The stress test serves two purposes. First to inspire confidence and second to keep the TBTF under the fed's thumb. Regional banks are in much better shape but they don't have derivative counter party exposure to the extent of TBTF. The message is clear get rid of the counter party exposure or raise capital.
    23 Mar 2014, 12:33 AM Reply Like
  • Steve98
    , contributor
    Comments (48) | Send Message
    I like to think of the stress test in terms of the IRS.


    A good CFO will not pay out more in taxes than is required by law. Same is true for the TBTF requirements by the FED. Why raise and keep more in reserves than is required. The FED is not a friend to the banks or to the consumer. TBTF is just an imaginary term, some should have failed, been acquired or get healthy. When a bank is told to start making loans to lower credit score people and businesses we set up the same look into the eyes of failure again. Good bankers know how to run their business, keep risk/ reward in proper balance to protect themselves and depositors. Get the FED out


    24 Mar 2014, 12:11 PM Reply Like
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