In the afterglow of the Fed’s stress tests, those banks that announced capital depl0yment above expectations are a surprisingly mixed bag.
Those names that passed the Comprehensive Capital Analysis and Review (CCAR) include American Express (AXP), whose shares are up about 3% today, or $1.48, to $55.784. But the stocks of the following banks, which were winners in the Fed’s stress test, were all flat to down: JPMorgan Chase (JPM), U.S. Bancorp (USB), and Wells Fargo (WFC).
Credit Suisse notes:
“Results varied meaningfully by bank, total capital return proved to be better than our expectations among those banks which generate higher returns. We would highlight AXP, JPM and USB are best positioned following CCAR results, with total approved capital return in excess of 70%+ and coming in ahead of forecasts.”
Adds FBR Capital Markets:
“Overall, the results of the CCAR process support our thesis that investors should favor stocks relatively less sensitive to an economic downturn and earning decent returns without releasing reserves, such as WFC, USB, JPM, PNC Financial Services Group (PNC), and Fifth Third Bancorp (FITB).”
Those not able to raise dividends or launch share repurchases are also a mixed bag. Bank of America (BAC) shares are up more than 3%, a strong rise compared to other financials. But shares of Citigroup (C) are decidedly in the red among all the aforementioned financial institutions, off 1.4%.
On Citi, Keefe, Bruyette & Woods Analyst David Konrad writes today that,
“Citi may have submitted an aggressive capital deployment plan. As a result, the resubmission of a capital plan could still result in meaningful capital deployment. On the other hand, it remains unclear what level of capital the Fed would currently be comfortable with for Citi to allow a buyback, given the Citi Holding assets, DTA and below-peer proforma Basel III ratios. As a result, Citi may not resubmit a plan as quickly as expected.”
Wonder how a master at buying financials on dips, Warren Buffett, is feeling about investing in B of A last summer? Berkshire Hathaway (BRKA) is still collecting dividends on B of A, and he owns American Express, whose yield is 1.4%.
