The Federal Reserve said Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM) have officially passed their annual stress tests.
The world’s biggest trading firms had their revised capital plans for 2013 cleared by the Federal Reserve, ahead of their next year’s submissions.
Dan Loeb's Third Point returned 11% in its flagship Offshore Fund and 13.2% in its Ultra Fund for the first quarter. For April, the Offshore Fund was up 1.7%, while the Ultra Fund gained 2.3%. The S&P 500 was up 6.2% for the first quarter, while the MSCI World Index gained 5%. Q1 2021 hedge Read More
Stress test results
During March, the Federal Reserve announced stress test results for 18 large financial institutions. The stress test evaluated the capital adequacy of bank holding companies (BHC)’s in a stressed scenario.
Both Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM) passed the stress tests in March, which are intended to assess whether banks have the financial strength to get through sharp downturns in the economy and the markets. However, the Fed indicated that it had identified significant weaknesses in the plans that JP Morgan and Goldman had submitted to show what might happen to their capital during periods of stress.
Consequently, the Fed told Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM) to come up with improved capital plans. The regulator threatened to stop the banks from paying out dividends and performing stock buybacks if the perceived flaws were not addressed.
Banks forced to revise capital plans by September
According to Hugh Son & Michael J. Moore of Bloomberg, JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs were among four firms forced to revise their capital plans by the end of September.
While Ally Financial Inc (NYSE:GKM)’s resubmission was approved last month, BB&T got Fed approval in August.
Following Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM) getting the green light from the regulator, the submission from all 18 banks in this year’s Comprehensive Capital Analysis & Review (CCAR) are now approved ahead of the next round due the first week of January.
CCAR 2014 to be tougher
Recently, the U.S. Federal Reserve published the CCAR 2014 Summary Instructions and Guidance. The CCAR, popularly known as the bank stress test is required for all 30 bank holding companies with total consolidated assets greater than $50 billion.
A Credit Suisse Securities Research report recently pointed out though the framework, timing and disclosure of the CCAR 2014 are very similar to last year’s, there are a number of changes to the variables in the supervisory adverse scenario, which is likely to cause projected losses somewhat larger than those produced in the 2013 CCAR process. The Fed anticipates releasing the results by March 31, 2014.