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March 18, 2014

U.S. Banks’ $75 Billion Payout at Stake in Stress Tests

“The biggest U.S. banks are about to learn whether they can pay out more than $75 billion in excess capital to investors as the Federal Reserve completes stress tests of their ability to survive new economic calamities.

“Wells Fargo & Co. and JPMorgan Chase & Co. would lead a 69 percent increase in dividends and stock buybacks over the next 12 months after the central bank releases results of its annual tests on March 20 and March 26, according to analysts’ estimates compiled by Bloomberg. That’s assuming the companies pass, which some of the analysts say is less than assured.

“We know the banks have enough capital, that’s not the question,” Todd Hagerman, an analyst at Sterne Agee & Leach Inc. in New York, said in an interview. “It’s more about whether there is something in the capital-planning process that the Federal Reserve might object to.”

“Investors and analysts including Hagerman are confident the six biggest firms will pass because of the capital cushions and experience they’ve amassed since stress tests began in 2009. There’s more concern that some of the 12 smaller banks taking part for the first time might not pass and speculation the Fed could reject one or more firms of any size for flawed planning.”

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Read full Bloomberg article here.

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