Join        Login             Stock Quote

Card Issuers Shine After Stress Tests

 March 14, 2012 01:10 PM

The Fed released the results of Comprehensive Capital Analysis and Review (CCAR), or stress test, showing that both American Express Co. (NYSE:AXP) and Capital One Financial Corp. (NYSE:COF) sustained the worst case scenario with healthy capital ratios.

Stress Test, or Comprehensive Capital Analysis and Review (CCAR), is a process where financial institutions will be tested to determine whether they have sufficient capital to continue operations throughout times of economic and financial stress. Top-tier U.S. banks with total consolidated assets of $50 billion or more are required to submit annual capital plans for review.

[Related -Sector Detector: Bulls Run With A Temporary Green Flag From Congress]

The Fed had initially planned to report the results of stress tests on Thursday, but later decided to release them on Tuesday.

The Fed's stress test included 13 percent unemployment rate, a 50 percent stock market decline, a greater than 20 percent contraction in home prices, an 8 percent contraction in GDP, as well as contraction in European and Asian growth.

The Fed noted that 15 of 19 banks passed the test, with the group on average reporting a Tier 1 common ratio of 6.8 percent, a Tier 1 Capital Ratio of 8.4 percent, a Total Risk-Based Capital Ratio of 11.7 percent, and a Tier 1 leverage ratio of 5.1 percent.

[Related -American Express Company (AXP): Enterprise Growth Emerges In 2013 Helping AXP To Grow Market Share]

American Express emerged with some of the best results from the tests and was among the top 3 capitalized financial institutions post stress test results.

The company had a Tier 1 common ratio of 12.4 percent, a Tier 1 Capital Ratio of 12.4 percent, a Total Risk-Based Capital Ratio of 14.4 percent, and a Tier 1 leverage ratio of 10.1 percent, well above the group averages.

As a result, American Express increased its dividend by 2 cents to 20 cents and its repurchase authority to $4 billion. With the company repurchasing roughly $3 billion in 2011, it essentially increased repurchase authority $1 billion from last year. On the news, shares of American Express touched a new 52-week high of $56.28 during the intra-day trading. 

Capital One also emerged stronger from stress test, with a Tier 1 common ratio of 7.2 percent, a Tier 1 Capital Ratio of 8.2 percent, a Total Risk-Based Capital Ratio of 10.7 percent, and a Tier 1 leverage ratio of 6.2 percent, in line with or above the group averages.

However, Capital One has not announced any shareholder return measures despite clearing stress test.

"We expect Capital One does not take any immediate action in response to the stress tests as the recent HSBC/ING acquisitions are integrated," Jefferies analyst Daniel Furtado wrote in a note to clients.

Meanwhile, Discover Financial Services Corp. (NYSE:DFS) raised its repurchase authority to $2 billion from $1 billion, while maintaining the dividend at 10 cents, as the stress tests surfaced excess capital.

Since Discover Financial is under $50 billion limit, it was subjected to CapPR, the results of which were not publicized.

"Assuming the company consistently buys back shares over the following eight quarters (2QFY12 – 1QFY13), our model suggests ~7 mln shares to be repurchased per quarter, accreting 12 cents of EPS benefit," Susquehanna Financial analyst James Friedman wrote in a note to clients.





Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageTackling China's Debt Problem: Can Debt-Equity Conversions Help?

China’s high and rising corporate debt problem and how best to address it has received much attention read on...

article imageWill Job Growth Kill The Bear-Market Signal For Stocks?

It’s all about jobs now. Actually, it’s always been about jobs. But the stakes are even higher—perhaps more read on...

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.