Bank of America Is the Winner, and JPMorgan the Loser
On the back of yesterday's gains, stocks opened moderately lower this morning, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average down 0.43% and 0.42%, respectively, as of 10:05 a.m. EDT. Today may see the end of the Dow's 10-day winning streak, while the S&P 500 is slipping away from its October 2007 high of 1,565 after coming within two points of the record yesterday.
Yesterday, the Federal Reserve announced the results of its review of big banks' capital plans. The review is part of the Fed's annual Comprehensive and Capital Analysis and Review, which includes the so-called "stress tests." These results have immediate implications for shareholders, as the capital plans submitted to the Fed include banks' proposals for returning capital to investors via dividends and share repurchases.
The two big winners today are Dow component Bank of America and Citigroup . The former intends to buy back $5 billion in common shares and redeem approximately $5.5 billion in preferred shares (Berkshire Hathaway's, presumably). The latter has plans for a $1.2 billion share buyback (Citigroup's plan was already released last week). For B of A and Citi, these are the first share buybacks of any substantial size since the financial crisis took hold and the banks required government support. However, note that both are maintaining their dividend at a nominal $0.01 per share. Bank of America is up more than 3% on the news, while Citigroup is down 0.6%.
Among the top six banks, JPMorgan Chase is undoubtedly today's big loser, followed closely by Goldman Sachs . Although the Fed did not object to their capital plans, it is requiring them to resubmit plans by the end of the third quarter, citing "weaknesses in their capital planning process." In estimating their potential losses under a doomsday scenario, both banks vastly undershot the Fed's own estimates, with JPMorgan producing a laughable figure of $200 million compared to the Fed's $32.3 billion.
JPMorgan will raise its dividend from $0.30 per share to $0.38. However, it is slashing its share buyback program to $6 billion from $15 billion in 2012 in order to preserve capital and meet capital-ratio requirements faster. The bank is also receiving unwanted attention today: The U.S. Senate's Subcomittee on Investigations has released a 307-page report on the "London Whale" trading loss fiasco, and JPMorgan executives will face difficult questions at a Senate hearing today.
JPMorgan stock has dropped 3.2% so far today, while Goldman Sachs has lost a more moderate 0.4%.
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The article Bank of America Is the Winner, and JPMorgan the Loser originally appeared on Fool.com.
Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of Bank of America, Citigroup Inc , and JPMorgan Chase & Co. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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