One week after the Fed found that all 33 US major banks have passed the stress test and would survive even a surge in the VIX to 70, moments ago the Fed released the details of the second part of the stress test - the capital distribution to shareholders - where as expected, it also had no complaints to any bank's capital plans except to advise Capital One, the troubled credit card lender with the rising bad loan problem, to resubmit its plan.
Discussing Capital On, the Fed said "the firm’s capital plan did not appropriately take into account the potential impact of the risks in one of its most material businesses. Further, the firm’s internal controls functions, including independent risk management, did not identify these material weaknesses in the firm’s capital planning practices. Therefore, senior management was not in a position to provide the firm’s board of directors with a reliable assessment upon which to determine the reasonableness of the capital plan."
The Fed also said if Capital One doesn’t satisfactorily address these weaknesses by Dec. 28, then the Fed expects to object to Capital One’s resubmitted capital plan and it may restrict the firm’s capital distributions.
COF stock is sliding as a result:
Analysts estimated before Wednesday’s results that the tests would open the way for banks to boost dividends and share buybacks by as much as half. That would translate to about $30 billion more cash in shareholders’ pockets according to Bloomberg. The lenders typically start announcing their next dividends and total potential payouts within minutes after the central bank’s report.
Still, as Bloomberg adds, Wednesday’s results show that banks across the industry have more room to raise dividends after stockpiling capital in the wake of 2008’s financial crisis - but also after the Fed softened how aggressively it measures their ability to withstand severe shocks. This year, authorities dropped one of the toughest components, the so-called qualitative review, for all but the biggest banks.
The industry is counting on a further relaxation of rules as President Donald Trump appoints more business-friendly board members to the Fed, shifting the balance of power from regulators to shareholders. Earlier this month, Treasury Secretary Steven Mnuchin recommended that stress tests be performed every other year and that banks maintaining a sufficiently high level of capital be exempt from exams.
Broadly, “the Fed is going easy on the banks this time around when it comes to capital,” Nejat Seyhun, a finance professor at the University of Michigan in Ann Arbor, said before results were posted. “There is a new administration in town and Chairperson Janet Yellen is trying her best to get along with President Trump and push back on interference from the politicians against the Fed’s independence.”
Also of note: Deutsche Bank's New York-based trust bank and Banco Santander SA’s U.S. business, which had both failed two years in a row on qualitative standards, passed this year after being exempted from the qualitative exam.
All of Frankfurt-based Deutsche Bank’s operations in the U.S. will be tested next year after the Fed required the largest foreign lenders to consolidate assets in the country under an umbrella structure starting last July. That will bring the German firm’s broker-dealer in the country under scrutiny for the first time in the tests.
So as one after another bank announces their capital return plans, here are the details on their various buybacks and dividend plans as they trickle in.
Here are the buyback announcements:
- ALLY TO BUY BACK UP TO $760M OF SHARES
- AMERICAN EXPRESS TO BUY BACK UP TO $4.4B OF SHRS
- BANK OF AMERICA PLANS TO BUY BACK SHARES UP TO $12B
- CAPITAL ONE SEES BUYING BACK UP TO $1.80B SHRS
- CIT TO BUY BACK UP TO $225M IN SHARES
- CITIGROUP TO BUY BACK UP TO $15.6B SHARES, BOOST DIV TO 32C/SHR
- CITIZENS PROPOSES COMMON SHARE REPURCHASES OF UP TO $850M
- COMERICA PROPOSES COMMON SHARE BUYBACK UP TO $605M
- BB&T: RECOMMENDATION OF UP TO $1.88B IN SHARE BUYBACK
- BANK OF NEW YORK MELLON TO BUY BACK UP TO $2.6B SHRS
- DISCOVER PLANS TO BUY BACK UP TO $2.23B OF STOCK
- FIFTH THIRD TO BUY BACK UP TO $1.16BN OF SHARES
- JPMORGAN TO BUY BACK UP TO $19.4B SHRS
- KEYCORP TO BUY BACK UP TO $800M OF SHARES
- MORGAN STANLEY REPORTS SHARE BUYBACK OF UP TO $5B
- M&T BANK SETS $900M BUYBACK
- PNC TO BUY BACK SHARES UP TO $2.7B
- REGIONAL FINANCIAL PLANS UP TO 1.47BN SHARE BUYBACK
- STATE STREET TO BUY BACK SHARES UP TO $1.4B
- WELLS FARGO PLAN INCL UP TO $11.5B SHARE BUYBACK FOR 4 QTRS
- ZIONS PLANS UP TO $465M IN COMMON STOCK REDEMPTIONS THROUGH JUNE 30, 2018
- ALLY BOOSTS QTR DIV TO 12C-SHR FROM 8C, EST. 10C
- AMERICAN EXPRESS TO BOOST QTR DIV TO 35C/SHR FROM 32C, EST. 35C
- BK PLANS BOOSTS OF QTR DIV TO 24C/SHR FROM 19C, EST. 22C
- CITIZENS TO BOOST QTR DIV TO 18C/SHR, UP 29%
- CIT PLANS TO BOOST QTR DIV TO 16C/SHR STARTING IN Q3
- COMERICA PLANS TO BOOST QTR DIV BY 15%
- DISCOVER PLANS TO BOOST QTR DIV TO 35C/SHR FROM 30C, EST. 34C
- FIFTH THIRD BOOSTS QTR DIV TO 16C FROM 14C, AND TO 18X IN Q2 2018
- JPMORGAN BOOSTS DIV TO 56C/SHR FROM 50C/SHR
- KEYCORP TO CONSIDER DIV BOOST UP TO 12C/SHR FOR 2Q OF 2018
- M&T BANK BOOSTS QTR DIV TO 80C/SHR FROM 75C
- PNC BOOSTS QTR DIV TO 75C/SHR, UP 36%
- REGIONAL FINANCIAL BOOSTS QTR DIV TO 9C/SHR FROM 7C/SHR
- STATE STREET BOOSTS QTR DIV TO 42C/SHR FROM 38C, EST. 40C
- WELLS FARGO SEES BOOST TO 3Q DIV TO 39C/SHR FROM 38C, EST. 38C
- ZIONS PLANS TO INCREASE DIVIDEND BY 4C EACH QUARTER TO 24C/SHR BY Q2 2018, STARTING AT 12C IN Q3 FROM CURRRENT 8C
And this is how the banks are responding: