Most Large Banks Ready for Stress Tests, Dividends

Most of the 19 large bank holding companies that will submit their capital plans to the Federal Reserve in early 2011 appear set to gain approval to begin returning capital to investors by increasing their dividends or buying back shares. The regulator made clear that banks still owing the government bailout money received through the U.S. Treasury Department's Troubled Assets Relief Program, or TARP, would have to fully repay the government before offering dividend payouts. The Fed will also expect the holding companies to "demonstrate with great assurance that they could achieve the ratios required by the Basel III framework." While U.S. regulators are still in the process of adopting Basel III, third-quarter capital ratios can provide a hint of which holding companies are best-positioned right now to comply. According to data from SNL Financial, members of the group of 19 holding companies that are no longer participating in TARP and will overcome the initial hurdle include Bank of America BAC, JPMorgan Chase JPM, Citigroup C, Wells Fargo WFC, U.S. Bancorp USB, PNC Financial Services PNC, Bank of New York Mellon BK, Capital One Financial COF, BB&T Corp. BBT, State Street STT, American Express AXP, Goldman Sachs GS and MetLife MET. Out of this group, all had Tier 1 risk-based common equity ratios of at least 7.56% (for USB), ranging as high as 13.90% for State Street. Additionally, these banks were all profitable during the third quarter, except for Bank of America, which posted a net loss of $7.3 billion, or 77 cents a share, although that resulted from a non-cash goodwill impairment charge of $10.4 billion, applicable to its Global Card Services segment. Morgan Stanley MS reported an even higher ratio of Tier 1 common equity to risk-weighted assets of 16.5% as of September 30. Continue reading the article.