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In its second round of stress tests in two weeks, the Fed rejected two banks' capital plans — Ally and BB&T — while it found weaknesses in two others, JPMorgan Chase and Goldman Sachs.
March 14
The results of new stress tests on the nation's largest banks set the financial world abuzz Thursday. But lost in the shuffle were announcements from several smaller institutions, which underwent a related round of stress testing.
One of those midsize banks, Zions, stated that the Federal Reserve Board objected to some of its proposed capital actions, while some others — including Northern Trust, Discover, Comerica and Huntington Bancshares — all said they emerged from the exercise unscathed.
Because those institutions all have at least $50 billion of assets, they and at least six others were put through a process that the Fed calls the Capital Plan Review. This stress testing exercise is similar to its better-known cousin, the
First, the midsize institutions go through a smaller set of scenarios and run simplified projections of their capital levels. And second, the Fed does not release publicly the results of the process, leaving each institution to decide whether to make disclosures.
As a result, investors received fragmented information Thursday and Friday. M&T Bank did not issue a press release until 5 p.m. Friday and the U.S. arms of five foreign-owned banks — BBVA Compass, BMO Harris, Royal Bank of Scotland's Citizens Financial Group, HSBC North America Holdings and Mitsubishi UFJ's UnionBanCal — that
Here is a quick rundown on what's known about midsize banks' capital plans, along with the reactions of investors:
• Zions. The Salt Lake City multibank holding company stated that while the Fed "objected to certain proposed capital actions, it did not object to key capital actions relating to the cost and quantity of Zions' noncommon capital." Zions will be required to resubmit its capital plan to the Fed.
The news was negative, but investors did not seem terribly fazed. "This issue strikes us as something than can be rectified easily enough," analysts at Sandler O'Neill wrote in a research note. Shares in the $55 billion-asset company were down 1.4% in late-day trading Friday.
• M&T. The Buffalo, N.Y., company said late Friday that the Fed approved its capital distribution plan, which did not include a dividend hike or plans for a stock buyback. (Its annual dividend has held steady at $2.80 per share since 2007.) The company announced last year that it would pay $3.7 billion to buy Hudson City Bancorp of Paramus, N.J., and it is still waiting for regulators to bless that deal.
"We believe the company's plan is purely focused on getting approval," analysts at Keefe, Bruyette & Woods wrote in a research note.
Shares of the $84 billion-asset M&T were down 0.5% in late-afternoon trading.
• Discover. The Riverwoods, Ill., company plans to increase its quarterly stock dividend from 14 cents to 20 cents, and also to repurchase up to $2.4 billion of common stock, it announced.
The disclosures as a bit of a surprise to Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods, who said in a research note that the planned dividend hike "came in better than our assumptions." Investors, too, were pleased with the plan; shares of the $74 billion-asset Discover were up nearly 3% in late-day trading.
• Comerica. The Dallas bank plans to make up to $288 million in equity repurchases and also received authority to redeem $25 million in subordinated notes, it announced.
That news followed its announcement in January that the $65 billion-asset company would increase its quarterly dividend from 13 cents to 17 cents. "We remain focused on total payout to shareholders, reflected by share repurchases and dividends, while maintaining our strong capital ratios," Chairman and Chief Executive Ralph Babb said in a press release.
Comerica's share price was unchanged in late-day trading.
• Huntington. The Columbus, Ohio, company announced an increase in its quarterly dividend from 4 cents to 5 cents and plans to repurchase up to $227 million in common shares. "Today's action by the Federal Reserve highlights our strong capital levels and financial performance," President and CEO Stephen Steinour said in a press release Thursday.
Shares in the $56 billion-asset Huntington were up 0.1% late Friday afternoon.
• Northern Trust. The Chicago custody bank announced plans to increase its quarterly common stock dividend from 30 cents to 31 cents, subject to approval by its board of directors. It also announced plans for up to $400 million in stock repurchases.
Shares in Northern Trust, which has $97.4 billion of assets, were trading down 0.3% late Friday.
