Chillin' out till it needs to be funded
Michael Corbat’s Citi did better than the Wall Street Titans for a change as it managed to get its payouts approved in the 2013 edition of the Fed Stress Tests while JP Morgan’s $1.5 B per quarter buyback program was just 20% of the payouts to be made by banks in 2013. BB&T and Ally failed the Fed test, Ally repeating last year’s spectacular failure with a Core Tier I ratio under stress below the required 5% in last week’s results. Citi was among the 14 banks whose payout plans were approved unconditionally today. American Express was benefited by the Fed’s decision to go back to the banks before announcing rejection of their plans as it was able to reduce the payout and get its revised plan approved by the Fed.
Goldman Sachs and JP Morgan were earlier last week cleared in the stress tests with just over 6% in Common Tier I Capital post stress and the numbers calculated by the Fed were a good 20% lower over the two titans’ own calculations submitted earlier in December. The redo imposed by the Fed today on the two titans requires them to submit a reworked payout plan by the third quarter but the payouts (lower than 2012 ) requested in their Capital plans were approved
FT.com (subscription, http://www.ft.com/cms/s/0/5caeb196-8ce1-11e2-8ee0-00144feabdc0.html#ixzz2NWELZ57E) summarises
Both Goldman and JPMorgan reported losses that were vastly lower than the Fed’s estimates when they unveiled the results of their own banking stress tests. Goldman forecast it would lose $6.6bn in a stressed market, about two-thirds lower than the Fed’s projection of $20.5bn. JPMorgan said it would lose just $200m – a fraction of the $32.3bn predicted by the Fed.
Citi has been approved for its first $1.2 B buyback after 5 years BAC has been approved for a big bang $5 bln in buybacks in its 2013 Capital Plan Also, with Bank of America having paid out all the costs of a litigous mortgage portfolio, it has been approved for another $5.5 Bln in its Capital Plan to redeem preference shares issued. Warren Buffet in the meantime, the industry’s saviour for two crises in succession, is again struggling to ensure an above par return for its portfolio in 2013.
Apparently JP Morgan’s 60% reduction in buyback amounts is already a defensive measure as it looks to be the Industry’s highest Charged bn ank in the US being in a class by itself for the Capital Surcharge decided by the Fed. It will increase its dividend to 38cents as approved if it is able to clear its revised Capital plan to fix the weaknesses in the Capital Planning process by September.
In a significant and related development, JP Morgan’s shares were pulled down in the pre open because of strictures passed by the Senate Committee reviewing his 300 page internal review of the Whale trading CIO portfolio that the bank was very publicly caught hiding as it tried to exit the illiquid positions and minimise losses before making a public apology and revelation a month after Q2 results had already been accepted by the markets in 2012.