Citigroup and Bank of America successfully passed the FED stress test with no obstacles to capital plans.
CitiGroup [CitiGroup] shares climbed 2.15% in trading and another 3.02% after hours, whilst Bank of America [BOA] rose 2.03% in trading but lost 1.24% after hours.
The test is part of a plan by the FED to ensure that U.S banks can take the pressure of downturn without having to rely on tax payer bailouts, which happened in the 2008 recession.
In Wednesday’s press release, the FED stated, “it has not objected to the capital plans of 28 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR). One institution received a conditional non-objection based on qualitative grounds, and the Federal Reserve objected to two firms' plans on qualitative grounds.” At the bottom of the pile were Deutsche bank and Santander Holdings.
Citigroup failed the stress test last year but spent $180 million on system improvements, giving the Group the best results of all 31 banks. The test also assesses planned capital actions such as dividend payments and share buybacks and issuances – CitiGroup has been given the go ahead to proceed with their plans whilst the Federal Reserve stated that it “did not object to the capital plan of Bank of America Corporation, but is requiring the institution to submit a new capital plan by the end of the third quarter to address certain weaknesses in its capital planning processes.”
Started in 2009, the test affirms that banks have “substantially increased their capital since the first round of stress tests.” Adding, “The common equity capital ratio of the 31 bank holding companies in the 2015 CCAR has more than doubled from 5.5 percent in the first quarter of 2009 to 12.5 percent in the fourth quarter of 2014, reflecting an increase in common equity capital of more than $641 billion to $1.1 trillion during the same period.”
The healthy status of the U.S banking system and this latest result has lead CitiGroup to be positive over dividend share payout, announcing, “The planned capital actions include an increase of Citi’s quarterly common stock dividend to $0.05 per share (subject to quarterly approval by Citi’s Board of Directors), as well as a common stock repurchase program of up to $7.8 billion during the five quarters starting in the second quarter of 2015.”
Bank of America also announced its capital plan of “$4 billion stock repurchase program and maintaining the common stock dividend at the current rate of $0.05 per share per quarter.”
MT4 Chart: CitiGroup
MT4 Chart: BOA
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