Goldman Sachs Comments on Bank Stress Tests (COF) (C) (WFC) (JPM) (MTB) (BAC)(MS)

The Fed's latest stress test showed 29 of 30 of the U.S.'s largest banks meet the top capital target of the test. Zion Bancorp (NASDAQ: ZION) was the only firm that failed to meet the stress test's target. In the view of Goldman Sachs, the Fed stress test implies a large capital buffer.

"In aggregate, stress test results imply a more benign credit environment (6.9% loss rates vs. 7.5% last year) and relatively stable pre-provision earnings power," said analyst Richard Ramsden. "We view results as most positive for COF (NYSE: COF) and C (NYSE: C), given the most debate around their capital returns. Additionally, RF (NYSE: RF), STI (NYSE: STI), PNC (NYSE: PNC), WFC (NYSE: WFC) and all trust banks screen as having considerably more excess capital than return expectations. While JPM (NYSE: JPM) and MS (NYSE: MS) also screen well, we expect both to be conservative on capital return asks."

"On the downside, we worry most about BAC (NYSE: BAC) as we estimate only $6.5bn (ann’l) of excess capital vs. $6-7bn in expected return. The fact that MTB's (NYSE: MTB) results include HCBK could give the market some comfort that the deal should close in 2014/2015. While ZION was the only bank to fail, it noted it will be re-submitting (containing actions to reduce risk, and/or increase common). DFS (NYSE: DFS) announced a $1.6bn buyback which may be on the lower end of expectations (we adjust estimates for this)," he added.

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