Why Bank of America Investors Are Stressed Out
Mar 14th 2013 3:34PM
Updated Mar 14th 2013 4:32PM
Bank of America shares began the week trading at $12.05. About midway through the day they're trading at $12.16, making for a barely noticeable uptick of 0.91%. Not what you'd call a big week. Chalk it up to stress -- investor stress -- over the Fed's stress tests.
The tale of the tickers
But before we stress out over that, here's a quick look at where the superbank's peers stand on the week:
- Citigroup moved a bit more than B of A, with an uptick of 2.1%.
- JPMorgan Chase is up a sluggish 1.32%.
- Wells Fargo didn't even make it up a percentage point, with a gain of just 0.85%.
No reason to stress
Today, at around 4:30 p.m. ET, the Federal Reserve is going to release the second set of results from its 2013 stress tests, officially known as the Comprehensive Capital Analysis and Review.
The CCAR runs the country's biggest 18 banks through a simulated, severe economic downturn and measures -- most importantly -- what's called the Tier 1 common capital ratio. This ratio looks at the bank's capital reserves in relation to its risk-weighted assets. Last Thursday, the Fed made public what each bank's common ratios were.
B of A did well -- much better than last year, the first year the Dodd-Frank mandated stress tests were run. For 2013, the superbank had an actual common ratio of 11.4% and a stressed minimum common ratio of 6.8%. Last year, B of A had an actual common ratio of just 8.7% and a stressed minimum of only 5.7%.
The median performance for this year was 7.7%. The Fed considers 5% the lowest stressed minimum a bank should have. As such, B of A comfortably passed its 2013 stress test, and also performed well in comparison to its peers.
For 2013, JPMorgan had an actual Tier 1 common ratio of 10.4% and a stressed minimum of 6.3%. Wells Fargo posted numbers of 9.9% and 7%, respectively. Given the drubbing B of A took in the financial crisis, and the fact it didn't even pass its stress test last year, its performance this year should be lighting up the faces of investors everywhere.
Foolish bottom line
So, why the lackluster share-price performance this week, then? Put simply, investors are awaiting the Fed's announcement later today, which will reveal what each bank's proposed capital plans are regarding dividend increases or share buybacks. Specifically, today's news will let investors know whether or not the Fed will allow each bank to proceed with their capital return schemes (if they have any) as planned.
B of A did well enough on its stress test that the Fed will likely approve any reasonable plan put forward. And investors are hungry for any kind of action that will return capital to them in one form or another. After last year's B of A stress-test failure, investors got neither a dividend increase nor share buybacks.
Expect some sort of welcome news on this front by COB today, and expect a jump in share price as the market opens tomorrow.
But always remember, Foolish investors, that no matter what your stocks are doing on a day-to-day, week-to-week, or even month-to-month basis, you're in this for the long haul. Short-term share-price spikes and drops are a part of life for any investor, but so long as the companies you're invested in have solid fundamentals, don't worry: Your money is in the right place.
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The article Why Bank of America Investors Are Stressed Out originally appeared on Fool.com.Fool contributor John Grgurich owns shares of JPMorgan Chase. Follow John's dispatches from the bleeding heart of capitalism on Twitter @TMFGrgurich .The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a lovely disclosure policy.
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