Traders Bet Bigger Bank Dividends Coming After Acing Stress Tests $XLF $BAC

Banks continued to rally Friday following the Fed’s announcement yesterday that nearly all of the thirty U.S. banks with assets greater than $50 Billion have enough capital to withstand another great recession. Zions Bancorp, $ZION, was the only institution deemed insufficiently capitalized to weather a scenario in which equities fall 50%, home prices are nearly halved, and unemployment spikes, according to the Federal Reserve’s latest round of stress tests.

In addition to showing whether the big banks could survive a major economic downturn without needing another “too-big-to-fail” infusion of taxpayer dollars, the stress tests determine whether banks can return money to shareholders. The Fed will announce on Wednesday, March 26, at 4P.M. whether it approved the capital plans at various banks.

Bank stress test results now open the door for dividend increases and share buybacks; $XLF remains seasonally strong thru March and April.

— Ben Silverberg (@silverjet2) Mar. 21 at 07:32 AM

Bank of America, $BAC, JPMorgan, $JPM, Wells Fargo, $WFC, and Morgan Stanley, $MS, were among the top trending tickers on Friday morning. Nearly all the major banks rose in the pre-market except Zions and Bank of America. Cashtaggers largely saw more upside. Sentiment on Financial ETF, $XLF, was 76% Bullish.

i think the fact that these financials rallied on good volume has implications for more upside $JPM $KEY $HBAN $MS $WFC

— Michael Samhan (@M5amhan) Mar. 20 at 06:27 PM

$BAC pulled back from yesterday’s near 2.8% gain. Though the bank passed the stress tests it did so with less capital than last year. That could endanger any plans to buyback stock or hike dividends. Some analysts believe $BAC will ask to pay around $0.06 per quarter.

$BAC Only one of the big 5 ending in red in AH, doesn't bode well for tomorrow

— Joe N (@compddd) Mar. 20 at 11:41 PM

$BAC 6.5 billion in extra capital. Might be a little disappointed on the 26th.

— roy collins (@roy95th) Mar. 21 at 08:33 AM

In a statement, Zions said that its results in the test were worse than anticipated because of significantly higher commercial real estate losses, greater risk-weighted assets and lower pre-tax, pre-provision net revenue in the test case. The bank said that the tests did not account for the sale of collateralized debt obligations in January and February of this year, which significantly reduce the bank’s risks in a great recession scenario. It plans to re-submit its plan to the Fed.

$ZION Whiff, do over……

— CAM274 (@CAM274) Mar. 20 at 04:10 PM

Under the worst-case scenario, loan losses at the major banks would total $366 Billion after nine-quarters. Tier one capital at these banks would fall from the current 11.5% to 7.6%, said The Fed.

The Fed cautioned yesterday that passing the Comprehensive Capital Analysis and Review (CCAR) did not automatically mean a bank would be able to offer planned dividends or buybacks. “It is important to note that capital plans of firms in CCAR have been objected to on qualitative grounds even when capital rations have exceeded all minimum post-stress capital requirements,” the Fed said in a statement.

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