Did Stress-Tested Banks Have Lame Excuses for Failure?
Susan Ochs tells us why some of the biggest banks failed the Fed's stress test.
- Duration 8:32
- Date Mar 15, 2012
Susan Ochs tells us why some of the biggest banks failed the Fed's stress test.
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Look -- -- about these bank stress tests and Liz Anne O'Donnell first reported here about the stringent requirements these banks who put under.
Fifteen of nineteen actually past fortnight in ended rationale for not passing was laughable coming out of some of them.
Maybe I'm wrong about that but -- Citi centrists MetLife ally which is division -- GM AC.
Failed CD failed because they claim in a stock buyback program on the it was like the dog ate my homework garbage but maybe I'm wrong about that Susan Cox is here with us right now former senior advisor to treasury and my -- Let me with a excuse is -- Well actually -- it was really more of a management issue at that they it's true that if they had not submitted a capital plan -- would have passed with flying palace frightening enough -- thought they -- and finally passed absolutely.
-- it was really more -- -- bad judgment call on their side to say we think we can get this through now Bank of America your call -- issued dividend last year got -- they learned their lesson they did not in the capital plan break even asked for announcement and so Citi would -- been -- bank Comerica is.
If they had submitted a capital plan they -- to sort of -- money back so that was kind of that really was a strategic air ally you know.
They just look back you know that then write down at their take on assets under the stress there was terrible America operations -- margins -- an -- -- so.
It's -- it was sort of mixed bag but I don't -- Citi blew my mind because.
It it was an -- on there are.
They knew this was coming -- -- this is happening so quit two weeks.
I have -- and really pass the darn -- and then talk about capital plan -- had to submit they would've had to get the capital by the fact.
I ended up part of this and putting -- in -- -- -- test results could.
Post stress tests let's capital plan I -- yeah and -- -- got Celadon do you think I'm wrong.
There's a good thing.
I -- think it was good -- my biggest take away and that really macro sense from on this is that this is a win for transparency in the financial system.
You know everybody had been so concerned even an initial stress test in 2009 he -- information out there to market's gonna freak -- -- they -- this you know this -- Even this time around the banks for saying you this is much more detail this time the name release in the past and it may know this is too much information -- -- -- that the markets.
The markets have really responded very -- early today is in the next right they've pushed through it there were no wild swings -- -- -- was reaction in equity prices because as you expect if it works dot Citi make a dividend now they're not the stock prices gonna -- -- that is it purely natural rational response right.
And so if you look at the broader trends between -- said starting -- Twitter account.
-- Ben Bernanke doing these press conferences that you were -- you know Greenspan never dead.
Two you know releasing these stress test -- you know that some of the liquidity information structure bar information that's been coming out.
All this is a really good strong trend in the direction of more transparency more disclosure in the financial system which ultimately helps the markets and I think makes helps people make better decisions.
-- -- a lot of detail on that point went -- to the point where -- there are still -- -- -- -- on these found absolutely JPMorgan still dealing with mortgage issues.
Wells Fargo dealing with a load of credit card unpaid credit card debt -- use that we did get a lot of information out of this stuff.
Where -- Europe play.
In this does Europe then is Europe still -- -- -- in our banking system.
It is because -- affect the broader economy I think they exposure is.
Relatively managed in terms of our banks having direct exposure to European debt but I think the economic issues are real and that -- in -- in there and I stress scenarios company.
Part of what they tested was slowdown in other regions of the of the global economy.
And we look at the stress scenario that they -- for Europe they had you know that the lowest point was contraction in you know negative 7% GDP.
And in a all the other regions were not nearly that bad in UK and Japan -- certain -- -- negative 4% which is up.
Really that is supposed to be like a really worst case -- was -- and it.
But even -- -- When they're going to have that level in Europe they they have to be concerned about the slowdown -- growth is not look good in Europe and that that's going to affect the global economy will affect their ability to continue to start growing.
-- one of the things.
That is a little bit disappointing.
Sort of for the economy coming out of the stress test with that.
You're looking on -- big capital plans in the banks in -- where is the lending plan where is the right.
Where's the -- land are still can't get money -- -- about this and actually.
He still can't -- markets right right and so you know -- -- -- -- fifteen billion dollar stock buy back in JD Jaime diamonds or is that look I only to stock buybacks and I believe that my -- is fundamentally undervalued and maybe he dad's.
But yeah and twelve billion that is going to be this year wouldn't wouldn't we like to see some of that twelve billion maybe going to alone in being a little bit more aggressive on the -- for -- -- -- to progressives that the risks -- about changes too much but.
So yes from an economic standpoint.
-- -- -- -- -- -- -- -- -- -- More areas -- -- -- a sure thing isn't it stock buybacks can get to -- -- it's just think of course need look making loans to people not -- sure thing right but.
They also have to now.
In the long term and again this is a hard long term view and I.
According earnings pressure but in a long term a stronger economy is better for them.
Slightly rising interest rates are a lot better for them part of the reason that retail banks are struggling so much right now because -- low interest rates they get no margin on -- right here traditional businesses that you thought why I think island.
You're not getting anything back rates one big vicious cycle -- in almost need better interest rate higher interest rates to encourage them.
To make loans -- kind of makes some money it yet yeah I mean it's it's all you know it's all these like very fine now margins but it it would it would and that's you know -- that there are struggling with -- and and it -- interesting because on one hand the market is happy.
That the Fed's gonna hold rates of 2014 or whenever and wherever they -- going to do on the flip side though bank.
In this instance banks can't make money so it's very hard it won't you know razor thin margins.
Right so what we need to know where should we be should we have -- -- I think you know should be -- -- rates -- to increase.
You know I think -- challenges for the rest of the economy.
A rate increase is probably gonna be contraction -- you know I don't I don't think we're quite there yet now we've been seeing some really good positive signs that we get a nice.
Weekly jobless number this morning.
-- -- -- Disease and identity dozen people still it's but still the trend is really OK it's a good -- John trends.
We're seeing the GDP numbers -- we're starting to see kind of move in the right direction and getting nice salad not exclusive but solid confirmation on -- the number of different.
Different metrics that people look at some -- the economy so we're starting to that direction but I don't think any people or -- talking -- another quantitative easing program from the Fed.
Because they're also sits on -- -- of the recession because you know this time last year we were exactly here that would help left.
And so you can't help but worry that it's deja Vu all over again right right right which is why I think -- raising interest rates right now would be would crazy yes just much too hard economy -- conceding things have been -- think.
Activities in Korea as its you know I -- So -- seems very you know tepid about the idea of doing that and I think -- you know comments yesterday.
And some of the good -- -- seeing.
I think it's a lot less likely than it was even you know at the beginning this year.
We certainly can't -- It it's you know there's people immunized you know people have questioned whether it's really having impacts right that we think it is as a lot of psychological issue for the market you know we know that that some of the markets wanted to know looking for theirs despite yesterday when there -- -- kind of comment and that.
The same time.
So I don't think it's something that's imminent.
Unlikely -- I would I would like to hear that the banks are doing more lending is who's buying back stock in particular because you know Elizabeth -- -- -- -- that.
A buyback this is like living -- with the girl a dividend is like is proposing here because you not to commit with the buyback but.
You can tick below below the ring is missing it you can't back up on a dividend that killed his stock you can always backed off on a buyback so buybacks and impress me.
Offering loans to small businesses that would present.
Susan -- you know accurate.