Of the 31 bank holding companies that participated in the Federal Reserve Board’s latest Comprehensive Capital Analysis and Review, only two received a failing grade—Deutsche Bank Trust Corporation and Santander Holdings USA. Bank of America Corporation, which received a conditional non-objection, will need to revise its plan to address capital planning process weaknesses. The Fed commented that the participating BHCs have substantially higher levels of capital than when stress testing began in 2009, and the 29 BHCs whose capital plans did not draw Fed objections, including BofA, will be able to proceed with planned capital distributions, such as dividends and stock purchases.
According to the report, the BHC’s aggregate common equity capital ratio has more than doubled since 2009, rising from 5.5 to 12.5, as common equity capital rose during the period to $1.1 trillion—an increase of more than $641 billion. The participating BHCs projected that their capital will continue to rise for another year.
Santander Holdings. The Fed found “widespread and critical deficiencies” across Santander’s capital planning process. Deficiencies were identified in the following areas: governance, internal controls, risk identification and management, management information systems, and the assumptions and analysis supporting the BHC’s capital planning processes. Santander already is subject to an agreement with the Fed under which it and its subsidiaries are prohibited from any capital distributions without the Fed’s prior approval.
Deutsche Bank. According to the Fed, Deutsche Bank’s plan suffers from “numerous and significant deficiencies” affecting the BHC’s ability to identify, measure, and aggregate risks; its loss and revenue projection processes; and its internal controls.
Deutsche Bank responded that this was the first time that Deutsche Bank Trust Corporation had participated in the CCAR, and it is "committed to strengthening and enhancing its capital planning process."
Bank of America. The Fed identified deficiencies in the loss and revenue modeling and internal controls aspects of BofA’s capital planning process. Unless the deficiencies are corrected in a revised capital plan to be submitted by Sept. 30, 2015, the Fed may object to the plan and restrict BofA’s capital distributions.
Planned capital distributions. Several of the participating BHCs have already announced plans for stock buy-backs and dividends, including:
- Goldman Sachs plans to increase its quarterly dividend by five cents per share and repurchase some shares, and it also may issue or redeem other capital securities.
- JPMorgan Chase intends to increase its dividend by four cents per share and buy back $6.4 billion of shares through the end of next June.
- Morgan Stanley announced a five-cent-per-share dividend increase and a plan to repurchase up to $3.1 billion in common stock over the next five quarters.
- Bank of America said it will buy back up to $4 billion in common stock while maintaining its current dividend.
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