* Says 15 of 19 big banks had strong capital after test
* Citigroup and MetLife failures surprise
* Ally and SunTrust also fall short under scenario
* Some banks get OK for higher dividends, stock buybacks
* Fed says JPMorgan not at fault for early release
By Jonathan Stempel
March 13 Most of the largest U.S. banks
passed their annual stress test, the Federal Reserve revealed in
an earlier-than-expected release of the results, after JPMorgan
Chase pulled the trigger on announcing its glowing marks and
helped lift the stock market.
But the failing grade for Citigroup, the nation's
third-largest bank, was a substantial surprise. Going into the
tests some analysts felt it had a better chance of a positive
surprise than any other financial institution.
The Fed said on Tuesday that 15 of the 19 banks tested could
take a financial shock that would see unemployment hit 13
percent and housing prices drop 21 percent.
MetLife, the largest life insurer in the United
States, was also among the four financial institutions that
failed the exam, which applied worst-case stress scenarios
looking out through the end of 2013.
Ally Financial and SunTrust were also at the bottom
of the heap.
Among the winners was JPMorgan, which has been
agitating for regulators to loosen the handcuffs on the ability
of banks to raise dividends and buy back stock.
The Fed uses the annual stress tests to give the markets a
window into the health of the U.S. bank industry, and also
determine if individual banks are strong enough to reduce their
JPMorgan, in a surprise to markets, announced around 3 p.m.
EDT (1900 GMT) that the Fed had given it permission to raise its
quarterly dividend by a nickel to 30 cents and buy back as much
as $12 billion of stock this year.
The news helped the U.S. stock market post its best day this
The Fed had been scheduled to release the test results after
markets closed on Thursday. A senior Federal Reserve official
told reporters that it came to the Fed's attention Monday
evening that there may have been an inadvertent release of some
The Fed official, who could not be quoted by name, said
JPMorgan's announcement was the result of less-than-perfect
communication between the bank and its regulator, and said that
nobody at JPMorgan was at fault.
Regarding the outcome of the tests, the Fed official said
the capital positions of U.S. banks has improved substantially
in the last three years.
The Fed took a tough line with the banks, and in a number of
instances, the central bank's estimates of banks' losses under
the hypothetical financial shock were larger than the firms'
own, the official said.
The Fed faces pressure to be tough enough so that the tests
have credibility, but not so tough that the results spook
"Overall, we can't complain that these tests weren't
rigorous enough and it's good to know that most banks would at
least survive another global financial meltdown. Nevertheless,
this doesn't mean that the U.S. economy would be unaffected by a
meltdown in Europe," said Paul Ashworth, chief U.S. economist at
Capital Economics in Toronto.
The Fed released 82 pages of detailed information showing
how the 19 banks fared under the hypothetical stress scenario.
The regulator left it to the banks themselves to reveal if
they had received permission to boost dividends or buy back
The regulator said Citigroup, Ally Financial and SunTrust
fared worst under the hypothetical shock, with Tier 1 common
capital ratios of 4.9 percent, 4.4 percent, and 4.8 percent
MetLife failed the stress tests on the basis of its
risk-based capital ratio. At a 6 percent minimum, it was lower
than any of the other banks examined.
The bank holding companies that came out top were Bank of
New York Mellon with a Tier 1 common capital ratio of
13.1 percent under the hypothetical financial shock, State
Street Corp with 12.5 percent and American Express
with 10.8 percent.
Wells Fargo was allowed to increase its quarterly cash
dividend rate to 22 cents, while U.S. Bancorp got permission for
a 56 percent increase in its dividend to 78 cents.
BB&T declared a 4 cent quarterly increase per share for
2012, and American Express and KeyCorp both said they got
permission for both a dividend increase and stock repurchase.
PNC said it received no objection for a dividend raise and
modest stock repurchase program.