Wednesday, November 23, 2011

KBW predicts stress tests will lead BofA to further improve capital

The new round of federal stress tests will likely push Bank of America to further improve its capital position, investment firm Keefe, Bruyette & Woods predicted in a research note Wednesday.

Big banks will have to submit their stress tests and capital plans to the Federal Reserve by Jan. 9, and will hear back by March 15, under the terms released Tuesday. The stress scenarios are more stringent than in years past, and include unemployment reaching 13 percent and home prices falling 21 percent.

KBW says the result for Bank of America, which it terms a "weaker" bank likely to "screen poorly," will be more asset sales and capital retention that will ultimately reduce earnings. The analysts said they do not expect the Charlotte bank to be forced to raise capital, though.

Bank of America has already shed a number of non-core assets in the last few quarters.

Wells Fargo will also face more stringent stress tests. KBW said the main scrutiny that bank will face will be on any future plans to raise its dividend.