Banks Got This Big Blessing for Shareholders

After the market closed last Thursday, the Federal Reserve announced the results of the Comprehensive Capital Analysis and Review (CCAR). In this document, the Fed analyzed capital ratios under the plan to comply with Basel 3 capital requirements, the ratios under distressed economic conditions, and the capital planning process.

In the CCAR, the Fed approved the capital plans of 14 firms, including those of Citigroup (NYSE:C), Bank of America (NYSE:BAC), and Morgan Stanley (NYSE:MS). Some firms, including JPMorgan Chase (NYSE:JPM), and Morgan Stanley received conditional approval. The banks were given approval to increase the amount of capital they return to shareholders over the next four quarters.

It came as a big surprise that the Fed approved Bank of America’s plan to repurchase approximately $5 billion worth of common stock and redeem about $5.5 billion in preferred stock. The market reacted well to this surprise, and before the market opened Friday morning the stock was up 3.8 percent to $12.57.