Bank of America, Wells Fargo, BB&T and nearly all the rest of the nation’s 18 largest banks would have enough capital to get them through another deep economic downturn, according to the results of federal “stress tests” released Thursday.
This year’s scenario included unemployment reaching 12 percent and home prices falling 20 percent. It calculates that the banks would lose a collective $462 billion over three-quarters of a year but that capital levels would remain above regulatory minimums and substantially higher than they did during the financial crisis of 2008.
Bank of America, Wells and BB&T all reported that their capital levels would bottom out at a higher level than they reported a year ago. Bank of America found itself behind rivals like JPMorgan Chase and Goldman Sachs a year ago, but posted better capital levels than the two this year.
Only Ally Financial Inc. did not pass its test this year. Ally employs several hundred people in an uptown Charlotte tower.
In another severe downturn, Charlotte-based Bank of America would stand to lose $57.5 billion in its loan portfolio, more than any other bank tested. Its loss rate, however, is lower than the average for all the banks tested.
Wells Fargo, which has its East Cost regional headquarters in Charlotte, would lose $53.8 billion on its loans.
This is the third year that the Federal Reserve has conducted the stress tests, which are now mandated by the Dodd-Frank financial reform law.
“The stress tests are a tool to gauge the resiliency of the financial sector,” Federal Reserve Governor Daniel Tarullo said in a statement. “Significant increases in both the quality and quantity of bank capital during the past four years help ensure that banks can continue to lend to consumers and businesses, even in times of economic difficulty.”
Thursday’s stress test results assumed a steady dividend and no share buybacks. More important to investors will be next week’s release of the Federal Reserve’s capital analysis, which evaluates the dividend and stock plans banks have submitted for the year ahead.
The results are expected to touch off a wave of announcements by the banks about increased dividends and stock buy-back plans.
Last year, the two were released together.
Bank of America is expected to be able to increase its dividend, which has been stuck at a penny per share since the financial crisis. Memorably, the bank asked for permission to increase the dividend in its 2011 capital plan, but it was rejected.
The Charlotte bank did not ask for permission to raise its dividend in last year’s capital plan, and passed its stress test. Wells Fargo increased its dividend to 22 cents from 12 cents after last year’s announcement.
Executives at Bank of America have been careful not to make any projections about its capital plan this year.
Dunn: 704-358-5235 Twitter: @andrew_dunn