Bank Stress Tests 'Much Bigger Surprise Than Expected,' Will Delay Future Investment Plans: JPMorgan
Portfolio Pulse from Hayden Buckfire
JPMorgan analyst Vivek Juneja reacted to the Federal Reserve’s annual stress test results for U.S. banks, highlighting a substantial increase in stress capital buffers (SCB) for large-cap banks. This increase may delay or reduce long-term capital return plans. Citigroup fared well, while Goldman Sachs and Wells Fargo faced significant SCB increases. U.S. Bancorp was downgraded from Overweight to Neutral. Bank ETFs like XLF fell, while regional banks outperformed.
June 27, 2024 | 8:38 pm
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POSITIVE IMPACT
Citigroup fared comparatively well in the Fed's stress test, with a likely decline in SCB by 20bp, benefiting from foreign revenues.
Citigroup's SCB is likely to decline by 20bp, which is a positive outcome compared to other large-cap banks. This positions Citigroup favorably in the short term.
CONFIDENCE 90
IMPORTANCE 70
RELEVANCE 80
POSITIVE IMPACT
The SPDR S&P Regional Banking ETF closed 1.06% higher, outperforming larger banks following the stress test results.
The outperformance of regional banks, as reflected in the rise of KRE, indicates a positive sentiment towards regional banks compared to larger banks following the stress test results.
CONFIDENCE 75
IMPORTANCE 60
RELEVANCE 60
NEGATIVE IMPACT
Bank of America will have the narrowest cushion of 120bp on its CET1 ratio, indicating higher capital requirements.
Bank of America's narrow cushion on its CET1 ratio suggests higher capital requirements, which could negatively impact its stock price in the short term.
CONFIDENCE 80
IMPORTANCE 70
RELEVANCE 70
NEGATIVE IMPACT
Goldman Sachs faced a significant increase in SCB by 90bp, which may delay or reduce long-term capital return plans.
The significant increase in SCB for Goldman Sachs indicates higher capital requirements, which could negatively impact its stock price in the short term.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90
NEGATIVE IMPACT
U.S. Bancorp was downgraded from Overweight to Neutral with a price target of $43.50 following the stress test results.
The downgrade of U.S. Bancorp from Overweight to Neutral indicates a negative outlook, which could lead to a decline in its stock price in the short term.
CONFIDENCE 90
IMPORTANCE 90
RELEVANCE 100
NEGATIVE IMPACT
Wells Fargo faced a significant increase in SCB by 90bp, which may delay or reduce long-term capital return plans.
The significant increase in SCB for Wells Fargo indicates higher capital requirements, which could negatively impact its stock price in the short term.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 90
NEGATIVE IMPACT
The Financial Select Sector SPDR Fund fell 0.12% following the stress test results, reflecting the overall negative sentiment towards large-cap banks.
The decline in XLF reflects the negative sentiment towards large-cap banks following the stress test results, which could continue to impact the ETF in the short term.
CONFIDENCE 75
IMPORTANCE 60
RELEVANCE 60