Most big U.S. banks pass Fed's stress test, boosting shareholder payouts

Thu Jun 30, 2016 4:47am EDT
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By David Henry and Patrick Rucker

NEW YORK/WASHINGTON (Reuters) - Nearly all of the largest U.S. banks are on steady enough footing to increase payouts to shareholders, the U.S. Federal Reserve said on Wednesday, with just two subsidiaries of foreign banks failing its annual stress test.

The results show that big U.S. banks have not only built up significant capital since the 2007-2009 financial crisis but that management teams have largely proven the merit of their internal disaster planning to the Fed.

However, the Fed criticized some elements of Morgan Stanley's (MS.N: Quote) capital planning process - but still allowed the bank to move ahead with plans for a $3.5 billion stock repurchase program and a quarterly dividend hike while it rectifies the issues.

The regulatory thumbs up prompted a slew of announcements from banks who plan to buy back more stock or increase dividends - good news for investors who saw their banks shares hammered by Britain's vote last week to leave the European Union.

The two banks that failed - Deutsche Bank Trust Corporation and Santander Holdings USA, which are subsidiaries of Deutsche Bank AG (DBKGn.DE: Quote) and Banco Santander SA (SAN.MC: Quote) - have also failed in the past. "Broad and substantial weaknesses" persist in their capital planning processes, the Fed said.

The rejection of their capital plans - the third year in a row for Santander and the second straight year for Deutsche - means that they cannot return any profits home.

(Click here to see how the banks performed:

The Deutsche Bank unit that failed holds its transaction and wealth management businesses in the United States. The bank is consolidating its U.S. business into a new holding company on July 1 called DB USA Corp, a larger unit, which will have its capital plan reviewed by the Federal Reserve in 2018, the company said.   Continued...

The headquarters of Germany's Deutsche Bank are photographed early evening in Frankfurt, Germany, January 26, 2016. REUTERS/Kai Pfaffenbach/File Photo