CCAR Follow-Up

I posted yesterday about the Federal Reserve’s review of 30 large banks’ 2014 capital plan proposals. For myself and other WFC shareholders, the news was good. Wells Fargo’s capital plan was approved with no issues. The plan includes a 17% dividend boost and a 350 million share buyback that would retire 6.6% of the outstanding common shares. The details of the plan were certainly good news, but the other piece of good news occurred today when there was no “sell-the-news” reaction from the market. In fact, WFC finished the day up about 1.2%.

It’s not just WFC shareholders that received good news from CCAR yesterday. Twenty-five of the 30 banks gained approval for their capital plans. Shareholders of Capital One Financial (symbol COF) were pleased with the company’s plan to buy back $2.5 billion worth of shares, and the stock closed up about 1.3% today. Other capital plans, while approved, were not met with such warm receptions. Fifth Third Bancorp (FITB) announced a 8.3% dividend boost and a $669 million share buyback initiative, but the market was not impressed as the stock traded down nearly 3% today.

Two big banks passed the review by the skin of their teeth. The Fed announced that Bank of America (BAC) and Goldman Sachs (GS) were privately asked to modify and resubmit their capital plans within the last week. And, of course, the big losers were the five “flunkees,” including Citigroup (C), which traded down over 5% today on the news. The other four flunkees were HSBC North America Holdings, RBS Citizens Financial Group, Santander Holdings USA, and Zions.

If you’re a shareholder of one of the 30 banks subject to CCAR, Samantha Sharf of compiled an excellent summary of the banks’ capital plans, despite the fact that Samantha looks like she’s about thirteen years old.

If you are wondering why CCAR matters or why shareholders should care about buybacks, check out my book, Beating Wall Street with Common Sense: How I Achieved a 400% Return from my Dorm Room. A handful of my most successful trades have revolved around understanding the psychology of the Federal Reserve bank stress tests. If you would like to learn how to consistently identify profitable trades involving catalysts such as these stress tests, bookmark Trading Common Sense and check back for upcoming details about my book that will be available in April.