Over the last five trading days, the biggest news in the banking industry was the announcement of stress test results by the Federal Reserve. This time, all 31 bank holding companies (“BHCs”), including certain U.S. units of foreign banks with consolidated assets worth $50 billion or more, cleared the stress test.
Actually, this indicates that the U.S. banking giants are adequately capitalized to survive under a tremendously difficult economic scenario. The clearance of the stress test does not automatically mean that the banks qualify for additional capital deployment. The banks will have to wait til March 11 to know whether their capital plans have been approved or not.
Among 31 BHCs that submitted their capital plans to the Fed in Jan 2015, Zions Bancorporation (ZION – Analyst Report) and The Goldman Sachs Group, Inc. (GS) have their capital ratios near to the minimum requirements. This might put their capital plans at stake.
Other headlines marked the usual resolution of legal issues and restructuring activities. Also, Citigroup Inc. (C – Analyst Report) came up with a bleak trading revenue outlook for the first quarter of 2015. This, to some extent, made investors wary about the industry’s overall near-term prospects.
(Read last week’s developments here: Bank Stock Roundup for Feb 27, 2015)
Recap of the Week’s Most Important Developments:
1. Citigroup announced the sale of its consumer-lending business OneMain Financial to Springleaf Holdings, LLC in a cash deal valued at $4.25 billion. The agreement, which is subject to regulatory approval, is expected to close in third-quarter 2015.
Part of the proceeds from the deal will be used by Citigroup to pay off certain funds, which were supporting Citi Holdings. Moreover, withdrawal of funds, along with the sale, is predicted to increase earnings before income taxes by about $1 billion (read more: Citigroup Sheds OneMain for $4.25B to Springleaf).
In a separate move, Citigroup sold its 9.9% equity stake in Akbank through an equity offering for TRY7.45 per share, amounting to $1.15 billion in total. The sale will have no material impact on the company’s financials.
