After hours trading is being dominated by the release of banking stress tests conducted by the Fed. Out of the 19 big banks, 4 failed to meet the capital requirements set forth in the test. Among the 4 banks with failing grades was Citigroup Inc (NYSE:C). Citi maintains the reason for its failure was due to its capital-return plan it had already put in place. Regulators said that the company could continue to pay its scheduled dividend.
The goal of the exercise was to judge whether or not financial institutions could withstand a shock similar to the 2008 financial crisis. A passing grade would be to those that would not require capital injections from taxpayers. In the scenario, the 19 banks would incur over 500 billion dollars in losses.
Metlife (NYSE:MET) also failed the stress test under what was deemed a total capital ration. They had 6% while the Fed wanted to see 8%. The company had been asking for approval of a $2 billion stock buy-back plan along with a dividend increase to $1.10 from 74 cents annually.
Those banks that passed the test immediately started to announce dividend increases, including JPMorgan. [Read more...]
