Cap dividends and no buybacks

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Rxwolf
Posts: 16
Joined: Wed Jan 30, 2019 1:50 am

Cap dividends and no buybacks

Post by Rxwolf » Thu Jun 25, 2020 3:56 pm

Wow,

Recently, rewatched the Big Short and then I read this action by the Fed seems like something is wrong with the banking system. So the banks failed the test, and the Fed wants them to conserve capital.

Stay the course.

https://www.marketwatch.com/story/fed-c ... =home-page

jebmke
Posts: 10835
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Cap dividends and no buybacks

Post by jebmke » Thu Jun 25, 2020 4:06 pm

This is what the tests are for. To get ahead of capital depletion. No surprise that the banks are holding assets that may be worth less than they were before. The stress tests are designed for this.
When you discover that you are riding a dead horse, the best strategy is to dismount.

sycamore
Posts: 615
Joined: Tue May 08, 2018 12:06 pm

Re: Cap dividends and no buybacks

Post by sycamore » Fri Jun 26, 2020 2:30 pm

Here's another article whose headline Fed Stress Test Finds U.S. Banks Healthy Enough to Withstand the Coronavirus Crisis gives a positive given-what-we-know-now view.

The article mentions that the Fed may have to take some steps if the economy/employment don't bounce back. I don't see where the Fed said that banks actually failed a stress test. A few banks (Capital One, Wells Fargo) look like they'll need to take some action if not now then in the 3rd quarter.

MBB_Boy
Posts: 99
Joined: Sat May 12, 2018 4:09 pm

Re: Cap dividends and no buybacks

Post by MBB_Boy » Fri Jun 26, 2020 2:47 pm

Rxwolf wrote:
Thu Jun 25, 2020 3:56 pm
Wow,

Recently, rewatched the Big Short and then I read this action by the Fed seems like something is wrong with the banking system. So the banks failed the test, and the Fed wants them to conserve capital.

Stay the course.

https://www.marketwatch.com/story/fed-c ... =home-page
They didn't fail, they passed. The Fed is taking this steps preemptively or for political cover, depending on your bias.

alex_686
Posts: 6317
Joined: Mon Feb 09, 2015 2:39 pm

Re: Cap dividends and no buybacks

Post by alex_686 » Fri Jun 26, 2020 2:55 pm

It is more subtle than that.

The system is currently fragile. The Fed does not want to cause a run on the system. So it is not going to create a list of "good" and "bad" banks. This would probably cause a overreaction. And multiple bank failures all at once. They are not going to release its stress test data. Better to lock down all banks. This allows them to punt the issue down the field, hopefully to a less stressful time when they can fix the issues at the individual banks, not the system as a whole.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.

sycamore
Posts: 615
Joined: Tue May 08, 2018 12:06 pm

Re: Cap dividends and no buybacks

Post by sycamore » Tue Jun 30, 2020 8:20 am

Not unexpectedly, Wells Fargo is going to cut their 3rd quarter dividend while the other big banks (JPM, Citi, Morgan Stanley, Bank of America, Goldman Sachs) appear to be maintaining theirs.

https://finance.yahoo.com/news/wells-fa ... 02113.html

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