CHICAGO, March 24, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Zions Bancorporation (Nasdaq:ZION-Free Report), Citigroup Inc. (NYSE:C-Free Report), JPMorgan Chase & Co. (NYSE:JPM-Free Report), Goldman Sachs Group, Inc. (NYSE:GS-Free Report) and State Street Corp. (NYSE:STT-Free Report).
Today, Zacks is promoting its 'Buy' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Friday's Analyst Blog:
Stress Test Results: Banks Healthier
At present, American banking giants are better positioned to withstand an economic downturn. This was disclosed by the Federal Reserve while releasing the Dodd-Frank Act Stress Test 2014 (DFAST 2014) results.
All the bank holding companies (BHCs) with $50 billion or more in total consolidated assets are part of DFAST 2014. Among 30 BHCs that submitted their capital plans to the Fed in Jan 2014, UT-based Zions Bancorporation (Nasdaq:ZION-Free Report) with Tier 1 common capital ratio of 3.5% failed to meet the minimum requirement of 5%. Further, these 30 banks altogether account for approximately 80% of total banking assets in the country.
Overall, under the most extreme stress scenario, the banks' aggregate Tier 1 common capital ratio will decrease to 7.6% in the first quarter of 2015 from 11.5% in the third quarter of 2013. Conversely, the ratio is significantly higher than 30 banks' actual ratio of 5.5% in the beginning of 2009.
Moreover, an extreme recession is expected to lead to $501 billion of losses. These included anticipated loan losses of $366 billion as well as $98 billion losses in trading and counterparty at the eight banks that have substantial trading or custodial operations.
Nevertheless, the clearance of stress test does not automatically lead to the conclusion that the banks qualify for additional capital deployment. The banks will have to wait till March 26 for approval of their capital plans.
Successful Banks
History repeated itself. In similarity to last year's stress test, smaller banks fared better in comparison to Wall Street biggies like Citigroup Inc. (NYSE:C-Free Report), JPMorgan Chase & Co. (NYSE:JPM-Free Report) and The Goldman Sachs Group, Inc. (NYSE:GS-Free Report). With 13.3% capital ratio, State Street Corp. (NYSE:STT-Free Report) topped the list.
Notably, in its latest capital plan, Discover Financial has asked for additional $1.6 billion worth of share repurchase through the first quarter of 2015 and a 20% rise in its quarterly cash dividend. Currently, the company has $2.4 billion share repurchase authorization (remaining $1.1 billion as of Dec 31, 2013) and pays quarterly cash dividend of 20 cents per share.
Among other major banks, Goldman with 6.8% capital ratio performed well in comparison to the 2013 stress test while Citigroup's ratio fell to 7% from the prior-year test results. Further, JPMorgan held a steady capital ratio of 6.3%.
Additionally, Ally Financial Inc. (majority-owned by U.S. taxpayers) which had failed to clear the stress test last year, recorded Tier 1 common capital ratio of 6.3%.
2014 Stress Test Scenarios
The Fed had three stress test scenarios - baseline (based on expectations of private economists), adverse and severely adverse - to test the banks' capital strength under stressful situations. These included 26 different variables such as employment and exchange rates, the anticipated changes in GDP, economic activity, prices, interest rates and a substantial weakness in emerging economies.
Further, the Fed tested the banks' balance sheet under the impact of slowdown across economies and severe recession in the U.S., Europe and Japan, leading to about 50% fall in equity prices. Other stressful circumstances comprised unemployment rate reaching 11.25%, home prices declining nearly 25% and the U.S. GDP decreasing 4.75%.
Today, Zacks is promoting its 'Buy' stock recommendations. Get #1Stock of the Day pick for free.
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