Test Fed slams Wall Street Titans while freeing record payment

Stricter resistance tests by the Federal Reserve have forced some of the biggest Wall Street banks to contain their ambitious plans to distribute liquidity to shareholders. But even these diminished returns represent a record profit for investors.

As the central bank's annual stress tests ended on Thursday, the country's top four lenders – JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., and Citigroup Inc. – announced that It would distribute more than $ 110 billion in dividends and stock repurchases, which would increase its shares at the end of the session. Even the shares of Goldman Sachs Group Inc. and Morgan Stanley – which the Fed prevented from increasing total payments – remained stable.

The Fed's decisions in the test have brought some relief to investors after a ] record 13 consecutive days of declines in the S & P 500 Financials index. In the hours following the test, more than 20 companies described how they will reward their owners over the next four quarters. Wells Fargo plans to increase payments by more than 70% to about $ 33 billion, while JPMorgan has announced a 16% increase to $ 32 billion

"Today, we are talking about capital announcements, and we are seeing dividends increase by more than 30% on average," said analyst Marty Mosby. at Vining-Sparks IBG LP, In addition, the buybacks mean that "the number of shares will fall by about 6 to 7%", increasing earnings per share, he added.

Wells Fargo rose 3.4% at the end of the session at 18:40. At New York. JPMorgan and Citigroup both grew at least 1.6%

The Fed also delivered bad news. The regulator said it was rejecting the initial proposals of six companies – JPMorgan, Goldman, Morgan Stanley, American Express Co., M & T Bank Corp. and KeyCorp – to make even higher payments, forcing them to temper their demands. Never before have so many companies taken this so-called mulligan to complete the exam.

Goldman died after agreeing to make online payments with the average of the last two years. Morgan Stanley has maintained the level that she has paid in the last 12 months. These plans could still leave them short of regulatory minimums in a severe crisis, the Fed has projected. But the regulator let them go after considering the impact of the fourth quarter 's exceptional charges related to US tax cuts – which should increase future profits.

This clemency contrasted with past years, said David Wright, Executive Director. Deloitte & Touche LLP's practice in banking and securities regulation.

"They thought they could provide a bit of accommodation to a small number of companies," he said. "I would not expect this to happen a few years ago under different leaders of the monitoring agencies."

The Fed also failed an American subsidiary of Deutsche Bank AG, citing "widespread and critical deficiencies". Planning. The widely anticipated rejection limits the unit's ability to send capital to Germany and comes as senior executives attempt to boost investor confidence. The Frankfurt-based firm said it was working with regulators and that it was progressing.

Read more: The US unit of Deutsche Bank fails the test of resistance

The Fed said that the plan of State Street Corp. The company is improving its methodology for calculating the exposure of counterparties in stressed scenarios. The New York-based bank said it "took a conservative approach."

In total, companies will distribute about 95% of their profits, according to Fed projections, roughly in line with analysts' estimates. This means that despite their failures in the tests, the big banks can deliver the $ 170 billion in combined payments that Wall Street analysts had predicted for the next 12 months – about $ 30 billion more than the previous four quarters.

Some companies would likely have trouble estimating. According to several estimates, Morgan Stanley would only slightly increase its payment and that Goldman Sachs would return less cash. Other signs of trouble emerged last week, when the pair barely passed the first round of the test, based on ongoing payments at past levels. The positions of these two companies changed little at the end of the session on Thursday.

The hypothetical scenarios of the Fed were much harder this year, with a 65% drop in prices and an economic contraction of 8.9% in the United States. The worst point in testing for the past three years has not exceeded 7.5 percent. The scenarios have created greater theoretical losses for companies with large capital markets firms. Goldman and Morgan Stanley's earnings are based more on trading and wealth management than on the biggest rivals who also do business and consumer banking