Thursday was a good day to be a bank in the United States, so long as you were a US bank in the United States.
The sector dominated the top tickers on Wall Street after the Federal Reserve's stress tests approved the capital plans for 31 of 33 banks after the closing bell on Wednesday, with only the US banking units of Deutsche Bank and Banco Santander failing to gain the Fed's approval.
Morgan Stanley (NYSE:MS) did win approval for its capital return plans, but it was conditional. Morgan Stanley will be required to submit a revised plan addressing weaknesses found by the Fed in its internal processes, with that report due by December 29. MS shares closed up 3% at $25.98.
Bank of America (NYSE:BAC) and Citigroup (NYSE:C) both saw light gains on Wall Street. These two stocks could get a boost from their approvals, which allowed both to increase their dividends for just the second time since the 2008 financial crisis. BoA shares closed up 0.6% at $13.27, while Citi shares were also 0.6% higher at $42.39.
M&T Bank (NYSE:MTB) also gained Fed approval, but it had to scale back capital distribution plans to keep its buffers above central bank minimums. Its shares gained 4.2% to $118.23.
So Germany’s Deutsche Bank and Spain’s Santander Bank were the only two licking their wounds, and some cynics might accuse the banking regulatory arm of the Fed of initiating a bit of protectionism ahead of the Brexit fallout.
That might not be so ambitious. On Thursday, ratings agency Standard & Poor’s downgraded the European Union to 'AA' from 'AA+' citing the reduced cohesion within the trading bloc following Britain’s Brexit vote. Earlier this week S&P became the last of the three major ratings agencies to strip the UK of its last remaining AAA rating as it warned that the economic, fiscal and constitutional risks the country faced had increased following the EU referendum result.
So the consequences of being a European bank in the United States may be a more expensive tour than it would otherwise have been.
The Federal Reserve objects to capital distribution plans proposed at Deutsche Bank Trust and the Santander U.S. operation, meaning that the banks cannot issue dividends or make share buybacks until they establish a new plan, the central bank said Wednesday.
But US bank Morgan Stanley also felt a pinch. It must submit a new capital plan by the end of the fourth quarter of 2016, but said they did not object to the bank's capital plan.