US banks shrug off turmoil to ace Fed's annual health checks (updated)

Citizens Financial

28/06/2023 21:35

(Adds details from test, background)
    By Pete Schroeder
       WASHINGTON, June 28 (Reuters) - Big U.S. banks sailed
through the Federal Reserve's annual health check on Wednesday,
in a vote of confidence for a sector still recovering from
turmoil earlier this year and facing an uncertain economic
outlook.
    The Fed's "stress test" exercise showed lenders, including
JPMorgan Chase  JPM.N , Bank of America  BAC.N , Citigroup
 C.N , Wells Fargo  WFC.N , Morgan Stanley  MS.N  and Goldman
Sachs  GS.N , have enough capital to weather a severe economic
slump, paving the way for them to issue share buybacks and
dividends. 
    The 23 banks tested, which all have more than $100 billion
in assets each, would suffer a combined $541 billion in losses
under the Fed's severe downturn scenario, but would still have
over twice the amount of capital required under its rules.
    Among the top performers were Charles Schwab Corp. and
Deutsche Bank's US operations, while regional lenders Citizens
Financial Corp. and US Bancorp were the laggards of the pack. 
        Goldman Sachs had the highest proportion of losses on
commercial real estate loans. State Street posted the highest
capital ratio of the globally systemically important banks.
    The $541 billion in total projected losses included over
$100 billion in losses from commercial real estate and
residential mortgages, and $120 billion in credit card losses,
the Fed said. 
        Lenders will now be allowed to return excess capital to
shareholders, although analysts expect payouts to be slightly
lower this year due to economic uncertainty and impending new
capital rules. 
  
        Lenders will be able to announce their share buyback and
dividend plans after close of trading on Friday, Fed officials
said.
  
        Under the 
    annual test
     established following the 2007-2009 financial crisis, the
Fed assesses how banks' balance sheets would fare against a
hypothetical severe economic downturn. 
  
        This year's test follows the collapse of Silicon Valley
Bank and two other regional lenders earlier this year. Those
banks found themselves on the 
    wrong end
     of Fed interest rate hikes, suffering large unrealized
losses on their U.S. Treasury bond holdings which spooked their
uninsured depositors.
  
        That crisis put the spotlight on the performance of
mid-sized and regional lenders, who managed to stay above
required capital levels but posted some of the lowest capital
cushions.
  
    
    

 (Reporting by Pete Schroeder; editing by Michelle Price and
Deepa Babington)
 ((Pete.Schroeder@thomsonreuters.com; 202-310-5485;))