Market Overview

Buckingham Sees Limited Downside To Big Banks Ahead Of CCAR Test Results

Buckingham Sees Limited Downside To Big Banks Ahead Of CCAR Test Results

Bank traders may no longer get on the edge of their seats ahead of the annual CCAR results, but in a very weak 2016, banks could use any bit of good news they can find. According to Buckingham analyst James Mitchell, a bit of good news is exactly what the market should expect.

Buckingham is predicting that the average CCAR bank’s dividend and buyback payout ratio will increase from 60 percent in 2015 to 66 percent in 2016.

“On an absolute dollar basis, we expect the median/average payout ratio to increase by 10%/14% across our coverage universe, with the biggest increases at the money center banks (20%-44%), primarily due to low payouts last year and improving capital ratios (particularly leverage),” Mitchell explains.

Related Link: WSJ Graphic Highlights 3 Eras Of The Modern Megabank

When it comes to the potential market impact of the CCAR results, Buckingham anticipates that the banks with the largest net share buybacks as a percentage of market cap will be Citigroup Inc (NYSE: C), (5.1 percent), State Street Corp (NYSE: STT) (4.8 percent) and Bank of New York Mellon Corp (NYSE: BK) (4.2 percent).

In terms of upside surprise, Buckingham sees Bank of America Corp (NYSE: BAC) and Morgan Stanley (NYSE: MS) well-positioned to beat consensus expectations due to relatively high exposure to the domestic market and an increase in risk adjusted ratios since last year’s CCAR.

Buckingham maintains Buy ratings on all the banks mentioned.

The CCAR results are set to be released on June 29.

Disclosure: the author is long BAC.

Latest Ratings for C

Jan 2021BerenbergDowngradesBuyHold
Jan 2021BarclaysDowngradesOverweightEqual-Weight
Nov 2020Morgan StanleyMaintainsOverweight

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Posted-In: Buckingham Research CCARAnalyst Color News Events Federal Reserve Analyst Ratings

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SLGMorgan StanleyMaintains58.3
FASTMorgan StanleyMaintains49.0
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