This page has been archived and commenting is disabled.

Fed's Annual Stress Test Results: 28/31 Pass - Deutsche & Santander Fail, BofA To Re-Submit

Tyler Durden's picture




 

After all 31 banks passed Dodd-Frank's "stress"-test with flying colors and awaited The Fed's CCAR blessing to spread the wealth to shareholders, we thought ironic that The Fed's Tarullo had previously commented that "we don't want banks to know the stress-test scenarios and tailor their portfolios to meet our goals," because that would never happen. The CCAR results are now out and 28 of 31 passed. Deutsche Bank, Santander failed for "qualitative" reasons (with significant and widespreasd deficiencies in risk management) and Bank of America will need to resubmit their proposal.

 

Financial Stocks had gone in hopeful...

 

Which looks a lot like last year... before stocks reverted lower.

 

As part of the Comprehensive Capital Analysis and Review, the Fed evaluates a bank's capital adequacy and planned distributions, such as dividend payments and common stock repurchases. If the Fed objects to a holding company's capital plan, the firm may not make any capital distribution unless the supervisor indicates in writing that it does not object to the distribution.

Last week, the Fed released the results of the Dodd-Frank stress tests, and all 31 banks were found to have enough capital to make loans if a severe economic downturn were to strike. The Fed tested each bank under severely adverse conditions, and each company's Tier 1 common capital ratio exceeded the regulator's five-percent minimum.

*  *  *

*  *  *

And so the dividends and buybacks are unleashed...

  • *ZIONS PLAN INCLUDES BOOST TO COMMON DIV TO 6C/SHR FROM 4C IN 2Q
  • *MORGAN STANLEY REPORTS SHARE BUYBACK OF UP TO $3.1B OF STOCK &
  • *MORGAN STANLEY BOOSTS QTR DIV TO $0.15/SHR, FROM 10C, EST. 15C
  • *HUNTINGTON PLAN INCLUDES REPURCHASE OF UP TO $366M SHRS
  • *HUNTINGTON PLAN INCLUDES QTR DIV BOOST TO 7C/SHR FROM 6C/SHR
  • *REGIONS FINL PLAN INCL BUYBACK OF UP TO $875M IN SHRS
  • *REGIONS FINL REPORTS PROPOSED DIV BOOST TO 6C/SHR
  • *BNY MELLON DIV REMAINS UNCHANGED AT $0.17/SHR OF STOCK.
  • *DISCOVER REPORTS PLANS TO BUYBACK UP TO $2.2B OF STOCK
  • *DISCOVER BOOSTS QTR DIV TO 28C-SHR FROM 24C, EST. 32C
  • *U.S. BANCORP RO AUTHORIZES NEW $3.022B SHARE BUYBACK PROGRAM
  • *USB PLANS TO BOOST QTR DIV TO 25.5C/SHR FROM 24.5C, EST. 26.5C
  • *PNC SAYS PLAN INCLUDES DIV BOOST TO 51C/SHR FROM 48C, EST. 53C
  • *WELLS FARGO PLANS QTR DIV BOOST TO 37.5C/SHR FROM 35C, EST. 37C
  • *BB&T TO BOOST QTRLY DIV $0.03 TO $0.27-SHR
  • *BB&T PLAN INCL CUMULATIVE SHARE BUYBACKS OF UP TO $820M
  • *FIFTH THIRD PLAN INCLUDES DIV BOOST TO 14C/SHR QTR
  • *FIFTH THIRD REPORTS '15 CCAR CAPITAL PLAN INCL BUYBACK $765M
  • *DEUTSCHE BANK TRUST: DBTCA WILL CONTINUE ISSUING DIV TO DBTC

*  *  *

This should be no surprise as we noted previously Deutsche and Santander would fail.

As USA Today reports,

Bank of America, the nation's second largest bank, received a conditional okay for its capital spending plan on Wednesday, but must resubmit its spending plan in September due to "deficiencies" in its revenue modeling and internal controls.

 

Bank of America's (BofA) internal flaws came to light on Wednesday when the Federal Reserve released phase two of its so-called stress test, which aims to spot capital weaknesses in the nation's top 31 banks.

 

Overall, only two of the 31 banks failed to pass the second phase of the test, which determines whether the nation's top banks are strong enough to spend their cash on things like dividends and stock buybacks.

 

The Fed flat out objected the capital spending plans of Deutsche Bank Trust Corporation and Santander Holdings USA, Inc. due what it said were "widespread and substantial weaknesses across their capital planning processes."

 

It's the second year in a row that Santander Holdings, a unit Santander Group of Spain, has flunked the second phase of the Fed's test.

 

The Fed said will give BofA until September 30th to remedy the deficiencies and resubmit its capital spending plan. If BofA does not properly address the weaknesses the Fed has identified by that time, the Fed could object to BofA's resubmitted capital plan and restrict BofA's capital distributions, it said on Wednesday.

BofA is not the first bank to receive a conditional okay as a result of the Fed's stress tests. In 2013, Goldman Sachs and JPMorgan also received conditional approval for their capital payouts.

*  *  *

There are two big problems with Deutsche Bank failing the Fed's stress test as the WSJ just reported it would.

This is what the WSJ reported moments ago:

Large European banks including Deutsche Bank AG and Banco Santander SA are likely to fail the U.S. Federal Reserve’s stress test over shortcomings in how they measure and predict potential losses and risks, according to people familiar with the matter. Failing the stress tests would likely subject the U.S. units of Deutsche Bank and Banco Santander to restrictions on paying dividends to their European parent companies or other shareholders.

Why is this an issue?

Well, the first problem is that Deutsche Bank recently passed the ECB stress test with flying colors. Then again, since that was a "test" which not even in its worst-case scenario modeled for deflation (as a reminder, Europe just suffered its record worst deflation in history on par with the Great financial crisis), one can now roundly dismiss any and all current or future analytical, regulatory and executive tasks conducted by the ECB. We will ignore the fact that the world's biggest bond buying program is currently being undertaken by precisely said clueless central bank. We will also ignore the other fact, that the bank of the former FDIC-head Sheila Bair, Santander - a bank which is currently the biggest subprime auto loan lender - will also fail the stress test: to dwell too much on that particular irony would give us a headache.

The WSJ did provide a token explanation for this particular "oversight" by the ECB:

Deutsche Bank Trust Corp. is expected to be found adequately capitalized by the Fed but will likely receive a warning on qualitative shortcomings, according to people familiar with the matter.

 

Both Deutsche Bank and Santander passed European Central Bank stress tests in October. Those tests focused on whether the banks had enough capital to withstand a two-year recession but didn't assess such things as governance, risk management, and other more subjective factors like the Fed’s test.

Actually, the explanation that Deutsche Bank is lacking in its "risk management" department should be enough to give one a chill, especially when one considers the second big problem. Then again technically it not just a second problem: it is some 62.2 trillion problems, which is what the gross notional exposure of all derivatives on the Deutsche Bank balance sheet is pre-netting (and as Lehman showed us, netting only works in a perfect world in which there isn't one single counterparty failure: if there is, there is no netting and gross instantly becomes net, simple as that).

 

So a bank which has €54.7 trillion, or a little over $62 trillion at today's exchange rate, in derivatives - a number that is 20 times greater than the GDP of Germany -  just failed a central bank stress test due to lacking governance and risk management controls and, just maybe, has insufficient capital? What can possibly go wrong.

*  *  *

 

 

bcreg20150311a1

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 03/11/2015 - 16:36 | 5879021 Ness.
Ness.'s picture

Moar buybacks coming.  $3B for MS.

Wed, 03/11/2015 - 16:55 | 5879078 Save_America1st
Save_America1st's picture

In other words:

 

"Stay Calm and Fuck Off....bitchez..."

 

Love,

 

Janet and the NWO overlords

Wed, 03/11/2015 - 17:27 | 5879166 Pinto Currency
Pinto Currency's picture

 

 

Deutsche to join Lehman and Bear Stearns.

Deutsche bailed on the LBMA gold and silver rig and now will be punished.

Wed, 03/11/2015 - 18:43 | 5879451 Thirtyseven
Thirtyseven's picture

Hundreds of Douchy-Bank foreclosures or pre-foreclosures just within my county.

Wed, 03/11/2015 - 16:37 | 5879023 maskone909
maskone909's picture

fed issuing stress tests to banks is like being on the jury of your own trial for fraud.

Wed, 03/11/2015 - 17:00 | 5879109 max2205
max2205's picture

These fuck yards should be paying us some fucking interest Not fucking buying back shares......what fucking planet are we on?

Wed, 03/11/2015 - 17:06 | 5879128 Philo Beddoe
Philo Beddoe's picture

We are on the planet Printune where we pay interest to the banks. 

Wed, 03/11/2015 - 16:37 | 5879024 Squid Viscous
Squid Viscous's picture

I would like to give Stanley Fischer a stress test, in my back yard, don't worry Stan I'm a doctor, trust me

Wed, 03/11/2015 - 16:49 | 5879068 Colonel Klink
Colonel Klink's picture

Flay him like the animal he believes all the goy to be.

Wed, 03/11/2015 - 16:38 | 5879031 asierguti
asierguti's picture

Godfrey Bloom already predicted it in the European Parliament 2 years ago.

 

http://www.youtube.com/watch?v=nrJj5xTgMPs

Wed, 03/11/2015 - 16:40 | 5879040 wmbz
wmbz's picture

This BS "stress" test by the un-fed is a complete bad joke. What fucking stress can there be when you are always and forever "to big to fail".

If only one of my wishes could ever be relized it is.. Blow up the fucking...Un-Fed!

Wed, 03/11/2015 - 16:44 | 5879053 Ness.
Ness.'s picture

PNC buybacks $2.85B

Wed, 03/11/2015 - 16:46 | 5879060 Colonel Klink
Colonel Klink's picture

Bullish........bullisht.....bullsshit......bullshit!

Who believes what the feral Federal Reserve says any longer.  They've been PROVEN to lie, and lie, and LIE again!  They've lost all credibility after being wrong 100% of the time, starting with Bernanke's proclamation that it's well contained.

Wed, 03/11/2015 - 16:49 | 5879063 gcjohns1971
gcjohns1971's picture

It's official.

They're eating their own.

Whatever these results are believed to mean, they certainly mean one thing:  Whoever lands in the 'failed' block is in this year's 'out' clique.

Wed, 03/11/2015 - 16:47 | 5879064 Philo Beddoe
Philo Beddoe's picture

I hope Elizabeth Warren is paying attention so that she will know what to overlook. 

Wed, 03/11/2015 - 16:47 | 5879065 Rainman
Rainman's picture

Stress tests are only intended to slow down the looting. All of them are insolvent, and speaking of mark-to-market ....

Wed, 03/11/2015 - 16:59 | 5879106 Bell's 2 hearted
Bell's 2 hearted's picture

being a tad cynic

 

probably more a "shake down" operation by politicians.

 

Give tribute (PAC $$s) to those running the show (O administration) or face retribution (not so good grade)

Wed, 03/11/2015 - 17:21 | 5879169 NotApplicable
NotApplicable's picture

I'd say that they merely create a plausible facade of solvency (for the sheeple in the financial world), which serves to allow the looting to continue, unabated. Otherwise, the truth of insolvency would bring the entire edifice crashing down in the blink of an eye.

Wed, 03/11/2015 - 16:48 | 5879066 Ness.
Ness.'s picture

Wells Fargo increase divivend to 0.375

Ny Mellon to buy $3.1B

AMX to buy $6.6B

Fuck it - I can't keep up with the madness.

 

 

Wed, 03/11/2015 - 16:50 | 5879072 Bell's 2 hearted
Bell's 2 hearted's picture

i remember original "stress" test spring of 2009

 

a few weeks ... a couple hundred of examiners ... $trillions and $trillions of  dodgy assets to examine

what a joke

 

Wed, 03/11/2015 - 16:51 | 5879074 Ness.
Ness.'s picture

BAC to buy $4B

 

Wed, 03/11/2015 - 16:51 | 5879075 salvadordaly
salvadordaly's picture

Go ahead and bookmark this article. When the black swan lands, we can all refer back to this article and ask WHAAAAAAAAT? No one could ever see it coming.

Wed, 03/11/2015 - 16:52 | 5879080 taketheredpill
taketheredpill's picture

 

Just so freaking similar to the US Banks and their CDO models that didn't work when they plugged in negative %yoy for Housing Prices.

 

German/French CPI out tomorrow....

 

 

Wed, 03/11/2015 - 16:54 | 5879086 Bell's 2 hearted
Bell's 2 hearted's picture

another year JPM released their results a few hours before feds released everyones

 

wtf is JPM doing with material information before public release?  No doubt a few trades made beforehand

 

no one on wall street/cnbc cared a wit

 

what a joke

Wed, 03/11/2015 - 16:57 | 5879099 Kaiser Sousa
Kaiser Sousa's picture

its all bullshit...

just the last days of looting b4 the ,01% head out for their luxury underground bomb shelters...

DEATH TO THE MONEYCHANGERS...

Wed, 03/11/2015 - 17:02 | 5879119 captainkid
captainkid's picture

so the private fed that has expanded it's balance sheet with junk us treasurys and mbs rules on its member banks ability to last in an economic collapse.

how about we let the criminals be the prison guards!

Wed, 03/11/2015 - 17:03 | 5879120 Ness.
Ness.'s picture

Damn. Citi not fucking around... buying back $7.8B

 

Weren't all these banks responsible for the 'greatest reccession' not too long ago?  BTFD boys - the sheep are going to LOVE this news.

Moar crazy pills please.

Wed, 03/11/2015 - 17:07 | 5879129 lasvegaspersona
lasvegaspersona's picture

Them furnerz whats failin...

Wed, 03/11/2015 - 17:14 | 5879149 davidalan1
davidalan1's picture

"BOFA to re-submit"-  Hey teach, uh, I know i will fail if i take the test today sooooo..........can i try try again? time to short the fuck out of BoFa

Wed, 03/11/2015 - 17:34 | 5879226 bluskyes
bluskyes's picture

Creative types don't make good bankers

Wed, 03/11/2015 - 17:45 | 5879274 venturen
venturen's picture

did I miss the jail time for fraud?

Wed, 03/11/2015 - 17:52 | 5879295 ifishivote
ifishivote's picture

Market looks a little shaky, lets release some bullshit..Rally on

Wed, 03/11/2015 - 18:13 | 5879360 Westcoastliberal
Westcoastliberal's picture

Run those tests again, except THIS time with mark to market.  Whoops!

Wed, 03/11/2015 - 19:39 | 5879631 rosiescenario
rosiescenario's picture

You have to wonder who are the biggest counter parties to DB's derivatives.

 

"No bank is an island"....especially one with 60+ trillion of derivatives outstanding.

Do NOT follow this link or you will be banned from the site!