Bank Stress Tests Reveal Citi, MetLife, SunTrust Failed

Federal Reserve number crunchers revealed late Tuesday that two big U.S. banks, Citigroup and SunTrust Banks, are among those that would still be quite strained in a dire test of their financial strength.

Shares of Citigroup (C), up 6.3% Tuesday, were down nearly 4% after hours. SunTrust Banks (STI) stock lost the day’s 3.2% gain after hours. The Fed also said insurer MetLife (MET), and auto and mortgage lender Ally Financial, didn’t pass muster. Shares of MetLife, which rallied 4.7% Tuesday, were off after hours by nearly 4%, or $1.60, to $37.86.

In a surprise announcement that followed the steep market rally, the Federal Reserve revealed that many other big American financial institutions are quite sound. So much so that some of them have the cash to boost dividends. The info was supposed to come late Thursday.

In a bold move that one might expect of CEO Jamie Dimon, JPMorgan Chase (JPM) was first out of the gate Tuesday afternoon with an announcement that it would raise its dividend by 5 cents to 30 cents, and would buy back stock. Shares of JPMorgan rose 7% Tuesday, and after hours shares sank nearly 1%, or about 39 cents, to $43.

The Federal Reserve’s lengthy report is here.

As we said in an earlier post, many of the stress-tested banks are expected to raise dividends, including Bank of America (BAC). But it is leaving its penny-per-quarter dividend where it is.

Some analysts are still forecasting a dividend increase for Citigroup, which said in this release late Tuesday that it

“will� submit a revised capital plan to the Federal Reserve later this year” and that the Fed “has no objection to our continuing the existing dividend levels on our preferred stock and our common stock” … and ” has no objection to Citi redeeming certain series of outstanding trust preferred securities, as Citi proposed in its Capital Plan.”

BAC was shown to have a 5.7% Tier 1 capital ratio, on the low side compared to the 6.3% aggregate of the 19 bank holding companies subject to the tests — though not as low as Ally’s 2.5% Tier 1 ratio. Regions Financial (RF) had a Tier 1 ratio of 5.7% and SunTrust came in at 5.5%. Morgan Stanley (MS) and MetLife each had a ratio of 5.4%, according to the Wall Street Journal story on the stress tests.

Most companies have issued press releases in response to the Fed test. Ally’s is here, and it says the Fed’s analysis

“dramatically overstates potential contingent mortgage risk, especially with respect to newer vintages of loans … [and] does not adequately contemplate contingent capital that already exists within Ally�s capital structure that could be available at the Federal Reserve�s discretion.”