The Federal Reserve will publish the results from its latest stress tests on 19 major U.S. banks. The goal is to make sure too big to fail financial institutions, would be capable of continuing to meet supervisory expectations for capital ratios even if stress conditions emerged, and the BHC (19 banks) did not reduce distributions.
In English, it essentially means if the economy went to hell again, the banks can continue with their planned cash outlays and not suck the economy into a black hole – like the Lehman collapse.
Banks have to provide Ben Bernanke a plan to survive the Federal Reserve's doomsday scenario of "a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent decline in housing prices." (Minus the stock prices, and using the real unemployment rate, those numbers aren't all that far off today's current picture.)
Based on the Fed's assessment, these institutions will receive a thumbs up or a mob-boss like demand for a do-over. Those that fall into the good graces of their unelected masters will have the OK to enhance shareholder value by raising dividends, and share re-purchase programs.
iStock is going to focus on the dividend part. By looking at the rules and the most recent financials for the banks in question, we want to see which companies have the greatest capacity to increase their dividends.
Here are the rules according to:
Federal Reserve System
Comprehensive Capital Analysis and Review
Summary Instructions and Guidance
The Federal Reserve expects that capital plans will reflect conservative common dividend payout ratios. In particular, requests that imply common dividend payout ratios above 30 percent of projected after-tax net income available to common shareholders will receive particularly close scrutiny.
Investors hunting for banks that have the wherewithal to increase their dividend payouts might consider the companies with the lowest percentage common dividend payout ratios. For your convenience, iStock ranked the following table in lowest to highest for you
Net Income - |
Common Dividends Paid
Capital One Fin
Amer Express Co
State St Corp
Pnc Finl Svc Cp
Fifth Third Bk
Bank Of Ny Mell
Regions Finl Cp
Bank Of Amer Cp
Results are based on the last reported numbers, and not projections. These numbers are subject to change and are believed to come from accurate sources. Only 18 banks are listed as Ally Bank doesn't trade common shares.