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Reports US

US stock market daily report (March 21, 2014, Friday)

March 23, 2014, Sunday, 19:45 GMT | 16:45 EST | 01:15 IST | 03:45 SGT
Contributed by Millennium Traders


Federal Reserve reported on Thursday that, out of the 30 major banks reviewed for annual health check with enough capital buffers to withstand a drastic economic downturn, 29 passed. Banks were required to show their ability to deal with the stock market cut in half or their ability to withstand a financial collapse similar to the 2007-2009 crisis. The eight largest banks had to weigh the impact of a default of their biggest trading counterparty as well. The Fed said under the toughest stress scenario, the group of 30 banks aggregate tier 1 common capital ratio dipped to 7.6% and at the beginning of 2009 the ratio was 5.5%. The Fed assumed banks would keep dividends at their current levels and buy back no shares, when determining results on Thursday. The release sets off days of speculation about whether banks with relatively low capital ratios would be allowed to increase dividends. Financial markets closely monitor stress test results for a sign of the health of the banking industry. Additionally, results provide guidance as to whether the Fed can reject plans by certain banks' to return capital to shareholders if they believe the banks are not strong enough to carry them out. On March 26 the Fed will announce which banks' plans to pay dividends or buy back shares were approved.

Highest capital ratios were reported for Bank of New York Mellon Corporation (BK-NYSE), Discover Financial Services (DFS-NYSE) and State Street Corporation (STT-NYSE). On Thursday, Discover announced plans to increase its quarterly dividend.

Wells Fargo’s lowest and ending Tier 1 Common Equity ratio under Basel I would each be 8.2% for the nine-quarter test horizon ending December 31, 2015, per the Fed.

Bank of America Corporation (BAC-NYSE) came in with tier 1 ratio was 6%. BofA also released their own stress tests that showed its capital ratio at a much higher 8.6%.

Zions Bancorporation (ZION-Nasdaq) was the only bank to fall under the 5% requirement for top-tier capital in the latest round of stress tests. Zions came in with a tier 1 capital ratio of 3.5% in the most severe stress scenario. Zions plans to resubmit its capital plan due to the sale of some securities that contributed to losses under the toughest stress scenario.

M&T Bank Corporation (MTB-NYSE) came in relatively low, at 5.9%.

Fed stress test results released Thursday do not take into account management actions to preserve capital. Regulators results on March 26 will determine whether dividend cuts will keep banks above the minimum Tier 1 common ratio of 5% over nine quarters during harsh economic scenarios.

Banks lose nearly $267 billion on all loans, including commercial real estate, credit cards and mortgages - under the adverse scenario of rising rates. Loan losses total almost $366 billion under severely adverse conditions.

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