Deutsche, Santander fail U.S. stress test; Morgan Stanley gets second chance

By David Henry and Patrick Rucker
NEW YORK/WASHINGTON, June 29 (Reuters) - U.S. bank
subsidiaries of Deutsche Bank AG DBKGn.DE and Banco Santander
SA SAN.MC yet again failed the Federal Reserve's stress test
on Wednesday due to "broad and substantial weaknesses" in their
capital planning processes.
The Fed gave Morgan Stanley (NYSE:MS) MS.N only a conditional pass,
saying that the bank also had to resolve weaknesses in its
processes. Morgan Stanley has until Dec. 29 to resubmit its
capital plan for approval.
The stress test results announced on Wednesday, known as
CCAR, are particularly important because they determine how much
capital big U.S. banks can put toward dividends, stock buybacks,
acquisitions or investments.
The vast majority of participants passed with flying colors,
including some that have had trouble in the past, like Citigroup (NYSE:C)
Inc C.N , Bank of America Corp (NYSE:BAC) BAC.N and Ally Financial Inc
ALLY.N . JPMorgan Chase & Co (NYSE:JPM) JPM.N , Goldman Sachs Group Inc (NYSE:GS)
GS.N and Wells Fargo (NYSE:WFC) & Co WFC.N also passed.
(Click here to see how the banks performed: http://tmsnrt.rs/293nwd2)
Later on Wednesday, many of the banks that passed will
release statements on dividend and stock buyback plans.
The CCAR results come after the Fed released results of a
separate stress test last week, in which all 33 banks exceeded
minimum regulatory capital requirements. But CCAR is a more
nuanced examination, in which the Fed can fail banks for the way
they go about capital planning as well as whether they
technically pass a numerical threshold.
Banks had a few days to resubmit their capital plans last
week if they felt that they were on shaky ground. M&T Bank Corp (NYSE:MTB)
MTB.N was the only bank to do so.
While the stress tests are only hypothetical scenarios and
the Fed's evaluations are subjective, the annual process is
forcing banks to be better prepared for real life events. Big
U.S. banks have more than doubled their capital since the
financial crisis, adding more than $700 billion in common equity
capital from the beginning of 2009, according to the Fed.
Market upheavals that followed a referendum last week in
which United Kingdom voters decided to leave the European Union
is a good example of how prepared U.S. banks are for turmoil,
said Mike Alix, a bank consultant at PricewaterhouseCoopers and
a former supervisory official at the Federal Reserve Bank of New
York.
"The benefits of CCAR are an absolute rise in capital ratios
and risk management," said Alix.
The Fed's checks on the quality of risk management and
capital planning "are driving improvements in governance,
infrastructure and controls" at the banks, he added.
At least one bank each year has failed to have its capital
plan approved since the Fed began issuing pubic verdicts in
2012.