The likely expansion of the Federal Reserve's stress tests beyond the largest bank holding companies could send bank stocks reeling even further -- but shouldn't have much of an immediate effect on most of the six additional publicly traded holding companies that would be subject to the ramped-up government scrutiny.
With the banks already suffering fee revenue declines from the CARD act -- which ended several practices that boosted credit card fee revenue -- and the coming implementation of the Durbin Amendment -- the provision of the Dodd-Frank banking reform legislation which will severely cap the interchange fees that large banks charge retailers to process debit card transactions -- an expansion of the Federal Reserve's stress tests to all bank holding companies with total assets over $50 billion could delay industry consolidation and even have a chilling effect on lending, with lenders looking to boost capital ratios by avoiding balance sheet expansion.
The group of 19 major banks that underwent the first two rounds of stress tests included the "big four" of Bank of America (BAC_), JPMorgan Chase (JPM_), Citigroup (C_) and Wells Fargo (WFC_), as well as investment banking giants Goldman Sachs (GS_) and Morgan Stanley (MS_). Large regional players that underwent the previous stress tests included U.S. Bancorp (USB_), PNC Financial Services (PNC_), SunTrust(STI_), B&T (BBT_), Regions Financial (RF_) and Fifth Third Bancorp (FITB_).
After the most recent round of stress tests were completed in March, several of the largest industry players began returning capital to investors by raising dividends or announcing resumption or expansion of share buyback plans. Bank of America's original capital plan was rejected, although the company said it would file an amended plan with regulators. Regions Financial is the only remaining publicly traded member of the "stress test 19" not to repay government bailout funds received through the Troubled Assets Relief Program, or TARP. The company owes $3.5 billion in TARP money.
Northern Trust(NTRS) of Chicago had $92.7 billion in total assets as of March 31, with relatively small loan exposure, as total loans and leases were $27.9 billion at the end of the first quarter, according to data provided by SNL Financial. Northern Trust's Tier 1 common equity ratio was a strong 12.99% as of March 31 according to SNL, indicating very little worries from investors over stress tests.
That's the highest Tier 1 common ratio among the five additional publicly traded holding companies with total assets greater than $50 million that would be subject to expanded government stress tests, for which the information is available.
M&T Bank (MTB) of Buffalo, N.Y., had $67.9 billion in total assets as of March 31. The company owes $230 million of the $600 million in TARP money it received in 2008, along with another $152 million in bailout funds originally provided to Provident Bancshares, which M&T acquired in May 2009.
M&T in May completed its acquisition of Wilmington Trust, repaying the acquired company's $330 million in TARP money.
The Wilmington sale was forced, as that company was in need of additional capital. M&T's March 31 Tier 1 common equity ratio was 6.78%, which was the lowest among the five additional publicly traded holding companies with total assets greater than $50 million that would be subject to expanded government stress tests, for which the information is available.
M&T's CEO Rene Jones said in a statement that "Capital planning and stress testing is nothing new at M&T," adding that M&T "had the lowest loan losses of any of the top 20 commercial banks through the financial crisis," and "the lowest TARP participation among the 25 largest commercial bank holding companies."
The company is looking to repay TARP without a dilutive capital raise.
Guggenheim securities analyst Mary Mosby on May 9 upgraded M&T to a "buy" from a neutral rating, with a price target of $114, saying the Wilmington Trust acquisition was "more accretive than the market appreciates," and that the company had "stronger capital ratios than is normally understood because of its best-in-class risk management approach." Mosby added that M&T's strong capital position should help the coming "TARP repayment be less dilutive and actually could be accretive."
With the banks already suffering fee revenue declines from the CARD act -- which ended several practices that boosted credit card fee revenue -- and the coming implementation of the Durbin Amendment -- the provision of the Dodd-Frank banking reform legislation which will severely cap the interchange fees that large banks charge retailers to process debit card transactions -- an expansion of the Federal Reserve's stress tests to all bank holding companies with total assets over $50 billion could delay industry consolidation and even have a chilling effect on lending, with lenders looking to boost capital ratios by avoiding balance sheet expansion.
The group of 19 major banks that underwent the first two rounds of stress tests included the "big four" of Bank of America (BAC_), JPMorgan Chase (JPM_), Citigroup (C_) and Wells Fargo (WFC_), as well as investment banking giants Goldman Sachs (GS_) and Morgan Stanley (MS_). Large regional players that underwent the previous stress tests included U.S. Bancorp (USB_), PNC Financial Services (PNC_), SunTrust(STI_), B&T (BBT_), Regions Financial (RF_) and Fifth Third Bancorp (FITB_).
After the most recent round of stress tests were completed in March, several of the largest industry players began returning capital to investors by raising dividends or announcing resumption or expansion of share buyback plans. Bank of America's original capital plan was rejected, although the company said it would file an amended plan with regulators. Regions Financial is the only remaining publicly traded member of the "stress test 19" not to repay government bailout funds received through the Troubled Assets Relief Program, or TARP. The company owes $3.5 billion in TARP money.
Northern Trust(NTRS) of Chicago had $92.7 billion in total assets as of March 31, with relatively small loan exposure, as total loans and leases were $27.9 billion at the end of the first quarter, according to data provided by SNL Financial. Northern Trust's Tier 1 common equity ratio was a strong 12.99% as of March 31 according to SNL, indicating very little worries from investors over stress tests.
That's the highest Tier 1 common ratio among the five additional publicly traded holding companies with total assets greater than $50 million that would be subject to expanded government stress tests, for which the information is available.
M&T Bank (MTB) of Buffalo, N.Y., had $67.9 billion in total assets as of March 31. The company owes $230 million of the $600 million in TARP money it received in 2008, along with another $152 million in bailout funds originally provided to Provident Bancshares, which M&T acquired in May 2009.
M&T in May completed its acquisition of Wilmington Trust, repaying the acquired company's $330 million in TARP money.
The Wilmington sale was forced, as that company was in need of additional capital. M&T's March 31 Tier 1 common equity ratio was 6.78%, which was the lowest among the five additional publicly traded holding companies with total assets greater than $50 million that would be subject to expanded government stress tests, for which the information is available.
M&T's CEO Rene Jones said in a statement that "Capital planning and stress testing is nothing new at M&T," adding that M&T "had the lowest loan losses of any of the top 20 commercial banks through the financial crisis," and "the lowest TARP participation among the 25 largest commercial bank holding companies."
The company is looking to repay TARP without a dilutive capital raise.
Guggenheim securities analyst Mary Mosby on May 9 upgraded M&T to a "buy" from a neutral rating, with a price target of $114, saying the Wilmington Trust acquisition was "more accretive than the market appreciates," and that the company had "stronger capital ratios than is normally understood because of its best-in-class risk management approach." Mosby added that M&T's strong capital position should help the coming "TARP repayment be less dilutive and actually could be accretive."
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