Nation's largest banks pass annual Fed stress test Nation's largest banks pass annual Fed stress test

The Federal Reserve - as expected - has given the green light again to the nation's 34 largest banks to raise their quarterly dividends and authorize larger share-purchase programs.

The Fed's board of governors released Thursday the results of its annual stress tests, as required by the federal Dodd-Frank Act.

The stress-test scenarios are created annually by the Fed, along with the Federal Deposit Insurance Corp. and the U.S. Office of the Comptroller of the Currency.

The tests determine whether those banks have enough capital to weather a significant economic downturn.

Among the affected banks are Bank of America Corp., PNC Financial Services Group, Truist Financial Corp. and Wells Fargo & Co., all with a major Triad presence.

TD Group US Holdings LLC, the U.S, subsidiary of Toronto-based TD Bank Group, announced Feb. 28 plans to pay $13.4 billion to purchase First Horizon National Corp. of Memphis, Tenn., in a megadeal projected to close in the first quarter of 2023. First Horizon has 92 N.C. branches, including 12 in Forsyth County and 30 altogether in the Triad and Northwest N.C.

Typically, banks disclose dividend and share-repurchase plans within weeks of gaining Fed permission.

The current quarterly dividends are 48 cents for Truist, 25 cents for Wells Fargo, 21 cents for Bank of America, $1.50 for PNC and 69 cents for TD.

The 34 banks collectively represent more than 80% of domestic banking assets.

The Fed said the 34 banks "continue to have strong capital levels, allowing them to continue lending to households and businesses during a severe recession."

All banks tested remained above their minimum capital requirements, despite total projected losses of $612 billion.

The board said stress tests "help ensure that large banks can support the economy during economic downturns."

The tests evaluate the resilience of large banks by estimating their capital levels, losses, revenue and expenses under hypothetical scenarios over nine future quarters.

This year's hypothetical scenario was considered by the Fed and banking analysts as tougher than the 2021 test, by design.

The scenario included: a severe global recession with substantial stress in commercial real estate (down 40%) and corporate debt markets; unemployment rate rises by 5.75% to a peak of 10% with the U.S. gross domestic product "declines commensurately;" asset prices decline sharply, including a 55% decline in stock prices.

For stress-test purposes, commercial real estate loans are for offices, hotels in urban locations or locations that tend to attract business travelers, shopping malls and strip malls, according to the Bank Policy Institute, a nonpartisan public policy, research and advocacy group that represents the nation's leading banks.

"The individual bank results from the stress test will factor directly into a bank's capital requirements, mandating each bank to hold enough capital to survive a severe recession," the Fed said.

"If a bank does not stay above its capital requirements, it is subject to automatic restrictions on capital distributions and discretionary bonus payments."

Individual bank scenarios

Truist projected a $6.4 billion net income loss, factoring $11.2 billion in revenue, a $16.9 billion loan-loss provision and $400 million in credit losses on investment securities.

Of the $16.5 billion in loan losses, $4.5 billion in commercial and industrial lending, $4.3 billion in commercial real estate, and $4 billion in "other" consumer loans.

Wells Fargo projected an overall $29.2 billion net income loss.

It estimated $41.7 billion in net revenue and requiring a loan-loss provision of $53.9 billion. There also would be $13.7 billion in trading and counter-party losses and $2.3 billion in "other" losses.

Of the $53.3 billion in loan losses, $15.6 billion was projected in commercial real estate, $12.5 billion in "other" loans, $12.2 billion in commercial and industrial lending, and $6.5 billion from credit cards.

Bank of America projected an overall $43.7 billion net income loss.

It estimated $28.3 billion in net revenue and requiring a loan-loss provision of $53.5 billion. There also would be $12.9 billion in trading and counter-party losses and $5.3 billion in "other" losses.

Of the $52.5 billion in loan losses, $17.4 billion was projected in commercial and industrial lending, $12.8 billion from credit cards and $8.4 billion in commercial real estate.

PNC projected an overall $8.1 billion net income loss.

It estimated $9.9 billion in net revenue and requiring a loan-loss provision of $17.2 billion.

Of the $17.9 billion in loan losses, $8.1 billion was projected in commercial and industrial lending and $5.1 billion in commercial real estate.

TD projected an overall $3.8 billion net income loss.

It estimated $6.2 billion in net revenue and requiring a loan-loss provision of $9.6 billion.

Of the $10 billion in loan losses, $2.8 billion was projected in credit cards, $2.4 billion in commercial and industrial lending and $2 billion in commercial real estate.

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