Dividend boost for US financials while Deutsche and Santander fail Fed stress test
The US divisions of Deutsche Bank and Santander have failed a stress test conducted by the Federal Reserve, which tested the resilience of banks in the face of another financial crisis.
The test, called the Comprehensive Capital Analysis and Review (CCAR) reviewed the 31 biggest banks operating in the US. Their combined assets amount to $14trn, representing around 80% of all assets held by domestic bank holding companies.
While the general results of the test were positive, approving the capital plans of 29 banks, it objected to the capital plans of Deutsche Bank Trust Corporation and Santander Holdings USA due to “widespread and substantial weaknesses across their capital planning processes”, it also requested Bank of America Corporation to submit a new capital plan.
“In its evaluation, the Federal Reserve identified numerous and significant deficiencies across Deutsche Bank Trust Corporation’s risk-identification, measurement, and aggregation processes; approaches to loss and revenue projection; and internal controls” the report stated.
Similarly, for Santander, it highlighted: “Specific deficiencies were identified in a number of key areas, including governance, internal controls, risk identification and risk management, management information systems (MIS), and assumptions and analysis that support the BHC’s capital planning processes.”
Both Deutsche Bank AG, the German banking company,and Santander Group have passed the most recent ECB stress test conducted in October 2014.
The overall positive results of the stress test are set to provide a boost to dividend payouts among US banks, with Citigroup and J.P. Morgan Chase announcing $7.7bn and $6.4bn respectively in stock buybacks and further increases of dividends.