Stress tests suggest economy may slide back into crisis: IRA
Recent stress tests conducted by the Federal Reserve suggest the banking industry and economy "may be sliding back into crisis" because of deflation in the housing sector, according to a new report from Institutional Risk Analytics. The Fed released its Comprehensive Capital Analysis and Review of the banks last week, giving a few financial firms the green light to boost dividends and stock repurchases. IRA affirmed its negative outlook for Bank of America (BAC) and Wells Fargo & Co. (WFC) after the stress test, while also reaffirming its neutral outlook for JPMorgan Chase (JPM) and Citigroup (C). "JPM was allowed to increase its stated dividend five times, a ridiculous move by the Fed given JPM’s hideous earnings quality," IRA said. "WFC announced a special dividend on top of the existing payout, but this raises the question as to next quarter’s dividend." Institutional Risk Analytics warned investors about some of the cautionary language included in the Fed's report that could suggest economic dangers tied to deflation in housing. "[T]he fact that the Fed did not allow (BofA), (Citigroup), Capital One, Morgan Stanley or Ally Financial to make any change in their payout shows that the good news for the banking sector is very limited. But more revealing than the dividend announcements last week are the assumptions in the Fed’s own CCAR analysis," the report said. Write to Kerri Panchuk.