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Article on Stress Test Results


Parsad
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Naturally the source of the article is from "unnamed sources", but I would suspect that most of the details are about accurate.  Banks will pay higher dividends, but maybe not just as high as everyone expects.  They are still very cheap and have very good balance sheets, so I'm not sure why everyone worries so much.  Everyone should be simply happy that the Fed is erring on the side of caution, rather than what happened during the housing bubble.  Cheers!

 

http://www.bloomberg.com/news/2012-03-09/fed-said-to-balk-at-banks-dividend-plans-amid-higher-loan-loss-estimates.html?cmpid=yhoo

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I dont see this as a bad thing for BAC or anyone else for that matter.  The worst case is something like: BAC - you need to raise 10 B more or 20 B to protect your depositors.  Then everyone knows where they stand.  These tests will only strengthen a banks reputation. 

 

I see a rally across the board, however the results turn out.  Except maybe JPM which is already returning to value - the market seems to see it as having no issues. 

 

The sooner this is all out in the open the better. 

 

 

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When lots of people are thinking short term then they might get worried about any development which might impact the price temporarily. People are trying to outguess each other rather than focus on business over the long term.

 

If banks are required to hold more capital then they will have bit lower ROE but at current price returns will be still satisfactory over the long term. I personally prefer rock solid balance sheet and old fashioned banks business. Banks are moving in that direction and it's a good thing. Discount to book will disappear soon with banks continuing to improve their balance sheet. Regulators are just being regulators, nothing else but in this case I don't mind banks holding bit extra capital even though I think they hold enough capital.

 

Huge difference between European and American banks but some people still lump them together.

 

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Indeed, I for one think that being a megabank with a rock solid blance sheet may not affect ROE as much as people seem to believe.  There will be as yet unseen benefits to being a SIFI bank.  The invisible hand will work it out one way or another. If their ROE collapses then shareholders will pressure them to become non SIFI banks through spinoffs, or splitting up regionally.  The regulators have to hand them some good juicy bones to make all this work. 

 

I noticed recently that BAC and WFC have a whole new business involved in health care accounts related to Obamacare.  Both are now into the hundreds of millions with these.  I dont have the details, unfortunately.

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There will be as yet unseen benefits to being a SIFI bank.  The invisible hand will work it out one way or another. If their ROE collapses then shareholders will pressure them to become non SIFI banks through spinoffs, or splitting up regionally.  The regulators have to hand them some good juicy bones to make all this work. 

 

Some banks complained of NOT being included in the SIFI list. SIFI banks will have a lower cost of capital after being officially declared too big to fail and having a governmental quality seal.

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