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

|By:, SA News Editor

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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