Stress Test: Deutsche Bank Fails, Goldman, Morgan, State Street Conditioned
The Federal Reserve’s Stress Test, held annually presents its report card.
Deutsche Bank does not pass the test, lending a great blow to the German lender.
Deutsche Bank failed to pass the Federal Reserve Stress Test as its capital plan was objected to, by the Federal board. The shares immediately tumbled down by 1% within hours.
The Federal Reserve holds the stress test, to see how banks would perform under recession or financial turmoil. The financial crisis that seized the world, a decade ago has made the stress test a necessity.
Three banks that cleared the test, however, were forced to follow conditions. The banks, Morgan Stanley (MS.N) and Goldman Sachs Group Inc. (GS.N), were conditioned not to increase capital distribution, while State Street Corp (STT.N) was asked to make an improvement on its risk management and analysis. These conditions were made by the Federal Reserve.
Deutsche Bank was asked to invest in technology, risk management, operations and personnel to a large extent. Its governance had to be changed too, says the Fed. However, its ability to pay dividends to its shareholders would not be affected.
The Bank has agreed to do as per the conditions laid out by regulators. Deutsche Bank has agreed to make improvements upon its infrastructure, controls and capital planning as per the instructions, in its subsidiary at the United States.
The S&P Financial Bank Index dropped for the 13th day consecutively. This is the longest drop on record, says the LPL Financial.
Goldman Sachs has announced that it would spend $6.3 billion through share buyback and dividends. Morgan Stanley had announced $6.8 billion to be distributed, the same as last year.
The Fed has approved 34 lenders for their capital plans to be used for dividends, stock buybacks, and other such purposes.
Six other foreign lenders with US subsidiaries also went through the test and had cleared the test.