The final assessment of the financial “stress test” is coming in, and we know you’re wondering what it means for your exchange traded funds (ETFs).
Did the banks pass? On Thursday, regulators will deliver their assessment regarding America’s 19 largest banks, reports David Ellis for CNNMoney. Each bank has its own characteristics and this is what Ellis thinks we should know about all the banks beforehand and what the overall outlook is.
- JPMorgan Chase (JPM). Some traders are concerned over exposure in consumer-related areas like credit cards. In the first quarter, they reported a loss because of credit losses.
- Citigroup (C). It reported a first-quarter profit but also had losses of $28 billion in the previous 18 months. The bank has also been told that it should raise more capital and the money to cover the capital would be coming out of the taxpayers’ pockets.
- Bank of America (BAC). Analysts believe it will need to raise more capital. It has also been suggested that the bank convert government preferred shares into common stock.
- Wells Fargo (WFC). Its profits rose in the first quarter, but it should raise more capital if the economy is still struggling.
- Goldman Sachs (GS). The stress test has put additional pressure on the company’s ability to pay back the government. The regulators would like GS to be able to stand on its own but they are also wary of releasing all government restrictions.
- Morgan Stanley (MS). The company’s Tier 1 capital ratio, a measure of a bank’s ability to withstand losses, is at a good 13%. The firm is though to be in good standing and it reduced dividends to 5 cents in an attempt to hold an extra $1 billion.
- Metlife (MET). The bank holding company previously refused government funds, which was interpreted as a sign of confidence in the face of the stress test.
- PNC Financial Services (PNC). This bank saw increase deposits, but it also stocked up on capital reserves. Both Tier 1 ratio and tangible common equity ratio, another measure of a bank’s ability to withstand losses, were up .05%. But the company may have to further increase its capital.
- US Bancorp (USB). Its Tier 1 capital ratio increased from 8.5% to 10.9%. The bank also is producing profits.
- Bank of New York (BK). The company’s Tier 1 capital ratio stands at 11.2%. It reduced dividends 63%, or $700 million a year, to help repay for TARP funds.
- GMAC (GJM). The $6 billion government loan did not really help the company. The bank is close to bankruptcy. They plan on continuing to make loans to people, even those with subpar credit scores.
- SunTrust (STI). This company was one of the first to take TARP funds and they sold shares to cover some of it. So far, its executives have stated that they want to repay the money but the company could be taking another loan.
- State Street (STT). State Street is facing liquidity problems within its asset-backed commercial paper unit. The stress test will reveal the regulators’ approach regarding the differences between this bank’s problems and others.
- Capital One (COF). Its U.S. card division will probably see losses of 8.4% in the first quarter and maybe as high as 10%. Card losses are correlated to unemployment rates, and some worry that higher card losses could imply higher joblessness.
- BB&T (BBT). Loan losses in its home equity portfolio are coming in but the bank is still profiting. It is suggested that the bank reduce its dividends to cover its capital needs.
- Regions Financial (RF). The company still faces strain in its residential homebuilder, condominium and home equity loans. The bank might not pass the stress test and will probably need more capital.
- American Express (AXP). In the last quarter, it reported a rise in card losses. If unemployment rises then the company may not be able to repay the government in a timely fashion.
- Fifth Third Bancorp (FITB). It has been showing losses in the past four quarters. The company is still tied to Florida real estate and analysts expect further losses for the company for the rest of the year. Fifth Third will need to raise more capital.
- KeyCorp (KEY). KeyCorp is still exposed to the commercial real estate sector and has incurred $2.27 billion in losses over the last four quarters. The company is located in the Midwest, a region that was hit hard by the current recession.
- Financial Select Sector SPDR (XLF): down 14.1% year-to-date; AXP is 2.2%, BAC is 4.0%, BK is 4.0%, GS is 6.4%, JPM is 13.6%, MET is 2.3%, USB is 4.0%, WFC is 8.1%
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.