Fitch: US Banks Raise CCAR Payouts; Planning Process Still Key

NEW YORK--()--The results of the 2016 Comprehensive Capital Adequacy Review (CCAR), the second stage of the annual stress test of the largest US banks, highlight the capital strength that enabled the sector to broadly increase payout requests, Fitch Ratings says. However, this year's exercise continued to underscore the need for banks to remain vigilant in terms of their capital planning processes.

All 33 US bank holding companies passed the CCAR quantitative assessment, although two banks, Deutsche Bank Trust Corporation (DBTC) and Santander Holdings USA Inc. (Santander USA) received qualitative objections to their capital plans. Morgan Stanley received a conditional non-objection for qualitative reasons and will need to address capital planning weaknesses and resubmit its plan by year end.

Most of the eight global systemically important banks (G-SIBs) upped their share repurchase and dividend plans. Comparisons of capital payout plans with the previous cycle are skewed by the 2016 requests applying to only four quarters following the disclosure of results, while applying to five quarters last year when results were published earlier in March 2015. Nonetheless, the largest banks raised their overall distribution requests. For example, JP Morgan increased planned share repurchases to $10.6 billion from $4.2 billion.

Fitch had expected banks to seek to increase capital returns as they have continued to build capital over the past year while becoming increasingly comfortable with the annual process. However, controls and governance remain key areas of focus for banks in future CCAR tests because the Federal Reserve continues to up supervisory expectations in terms of capital modeling and planning. The Fed noted that, despite general progress, banks still need to improve internal controls around various elements of capital planning.

This year's submission also highlighted the bifurcation of banks under the Large Institution Supervision Coordination Committee, mainly G-SIB institutions, and other large but less-complex institutions. The Fed has higher supervisory expectations for the larger, more-complex banks. Importantly for US G-SIBs, future CCAR tests may require them to factor in their G-SIB buffer requirement.

New participants TD Group US Holdings LLC and BancWest Corporation passed, which is positive since foreign-owned banks have historically struggled with the qualitative requirements of CCAR, particularly during their first inclusion in the process. This is the second qualitative failure in a row for DBTC and the third for Santander USA. The objections will not materially affect the capital positions and overall financial flexibility of their ultimate foreign parents, Deutsche Bank and Santander S.A. The Fed assessed DBTC's capital planning and stress testing practices based on the standards applied to the largest US banking groups given Deutsche Bank's large US operations, despite DBTC only accounting for a small proportion of the wider group's business.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Christopher Wolfe
Managing Director
Financial Institutions
+1 212-908-0771
Fitch Ratings
33 Whitehall Street
New York, NY
or
Joo-Yung Lee
Managing Director
Financial Institutions
+1 212-908-0560
or
Cynthia Chan
Head of Fitch Wire
+44 20 3530 1655
30 North Colonnade, Canary Wharf
London
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Christopher Wolfe
Managing Director
Financial Institutions
+1 212-908-0771
Fitch Ratings
33 Whitehall Street
New York, NY
or
Joo-Yung Lee
Managing Director
Financial Institutions
+1 212-908-0560
or
Cynthia Chan
Head of Fitch Wire
+44 20 3530 1655
30 North Colonnade, Canary Wharf
London
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com