Shares in the biggest U.S. banks rallied after they passed the Federal Reserve’s annual health check; but Bank of America (BAC.N) underperformed with test results implying it needs a larger-than-expected capital buffer. Which could limit share buybacks and dividends.
While the broader equity market also rallied, Wells Fargo & Co (WFC.N), up 7.5%, was the biggest gainer among the 34 lenders’; that underwent the Fed’s so-called stress test, which measures how they would fare in a hypothetical severe economic downturn.
The group would have roughly twice the capital required under Fed rules in the downturn scenario, it said. But the results implied a big variation in the size of banks’ stress capital buffers (SCB) – an extra layer of capital banks must hold to cover potential losses. And support their daily business which the Fed will set in coming weeks.
The group would have roughly twice the capital required under Fed rules in the downturn scenario, it said.
He sees the buyback adjustments shaving about 5% off EPS at Bank of America, and reducing EPS about 2% at JPMorgan and Citi.
Wells Fargo investors were relieved as its stress capital buffer is expected to remain almost unchanged from last year, Konrad said.
Bank of America shares closed up 0.7%, while Citigroup finished up 3.3% and JPMorgan ended with a 3.0% gain. The broader S&P 500 financial services index (.SPSY) closed 3.8% higher.
The U.S. units of foreign banks performed well.
UBS Group AG closed up about 6%, while Credit Suisse added 5.5%. Other strong performers included Ally Financial (ALLY.N), up 5.0%, andDiscover Financial Services (DFS.N), which climbed 5.4%..
-Reuters.
