US bank stocks rise as lenders sail through Fed's stress tests (updated)

PacWest Bancorp

29/06/2023 12:44

(Adds comments and details in paragraphs 12 to 15, 17, updates
shares prices throughout)
    By Manya Saini
       June 29 (Reuters) - U.S. bank stocks rose in premarket
trading on Thursday after the Federal Reserve's stress test
showed the lenders have adequate capital to survive an economic
slump even though analysts doubted if that would lead to higher
returns for shareholders. 
    The test showed the average capital ratio for the 23 banks
was higher than last year when the central bank had reviewed 34
lenders against a slightly easier scenario.
    This year's test, which was devised before the latest
banking crisis, checked if banks would stay above the minimum
4.5% capital ratio during economic stress and macroeconomic
instability.
    Shares of the top performer in the test, Charles Schwab
 SCHW.N , gained 2.2%. Major banks JPMorgan Chase  JPM.N , Wells
Fargo  WFC.N , Morgan Stanley  MS.N , Goldman Sachs  GS.N  and
Bank of America  BAC.N  also gained between 1.2% and 1.9%. 
    Of the six regional lenders that were part of the test, Bank
of New York Mellon  BK.N  and US Bancorp  USB.N  added 1.5% and
0.8%, respectively. 
  
  
    While the test results paved way for shareholder returns
through dividends and buybacks, Wall Street analysts warned an
uncertain economy and banks awaiting regulatory clarity will
lead to limited capital return in the near-term. 
    "Upcoming regulations will likely lead to higher capital
requirements for all banks above $100 billion of assets," said
analysts at brokerage Jefferies, adding that many banks have
already pulled back on capital return. 
    RBC Capital Markets analysts said though the largest U.S.
banks remain strong even in a severely stressed scenario,
management teams will likely be prudent on capital. 
    "With the recent banking crisis driving banks to be more
conservative in the near-term on capital and balance sheet
management, we see share buyback activity as being limited for
the remainder of 2023," the brokerage said.  
    Citizens Financial  CFG.N  dropped 2.2% after the regional
lender came in last. J.P. Morgan downgraded the bank to
'neutral' in anticipation of an increase in capital requirements
hurting its profitability.
    Citigroup  C.N  rose marginally, but trailed its peers as
analysts expect that an increase in its stress capital buffer
would hamper its plans to improve profitability. 
    "Citi will now have the highest CET1 requirement among our
banks at 12.3%," J.P. Morgan analysts wrote in a client note. 
    U.S. banks have regained some ground after a troubled start
to the year that was marked by the collapse of three mid-sized
banks due to a flight of deposits at Silicon Valley Bank. 
    "While the results were not a surprise, perhaps the bank
stocks can react positively as one uncertainty is cleared...
banks remain in a solid fundamental position should the economy
enter a recession," Raymond James analysts said.  
    The KBW Regional Banking Index  .KRX  has recovered 6.04%
this month, but still remains down 24.5% for the year, through
previous close. 
    Meanwhile, the S&P 500 Banks Index  .SPXBK , tracking a
basket of large-cap bank stocks, is up 0.9% quarter-to-date, but
has fallen 12.2% so far this year. 

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Projected minimum CET1  capital ratio under the severely adverse
scenario Projected minimum CET1  capital ratio under the
severely adverse scenario    https://tmsnrt.rs/3CSdnuY
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 (Reporting by Manya Saini in Bengaluru; Additional reporting by
Niket Nishant; Editing by Arun Koyyur)
 ((Manya.Saini@thomsonreuters.com;))