Q: Is the stress-test bullish for bank stocks?
A: Bank investors now have more macro things to stress over than the Fed’s stress tests.
The fact all 33 bank holding companies passed the Federal Reserve’s annual quantitative stress test was vote of confidence. The Fed found even if the economy took a major hit, resulting in negative interest rates and a 10% unemployment rate, banks could maintain the financial cushion needed to absorb the hit. Many analysts think the stress test results opens the door for banks to boost plans to give money back to investors, in the form of dividends and stock buybacks. Larger dividends would be a boon for investors, who have watched the sector go from one of the highest yielding groups before the 2008 financial crisis to just a middling one. The average dividend yield of the largest big banks is just 2%, which is essentially the same as what’s paid by the Standard & Poor’s 500. The Fed’s additional stress tests this week will signal if banks can boost their payouts. But now, bank investors have new worries that will curb enthusiasm. Concern over Brexit is knocking financial stocks down, detracting from the benefits of higher dividends. Long-term investors might find bargains in bank stocks, but it’s going to be a rough ride.
USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.
