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Fed Revises Worst-Case Stress-Test Results for Biggest Banks

Pedestrians walk past an HSBC Holdings Plc bank branch in New York. Photographer: Scott Eells/Bloomberg
Pedestrians walk past an HSBC Holdings Plc bank branch in New York. Photographer: Scott Eells/Bloomberg

The Federal Reserve corrected figures released yesterday for at least 15 of the 30 biggest U.S. banks in an annual stress test, without changing how many fell below minimum requirements under a worst-case scenario.

The Tier 1 common capital ratios “were adjusted to address inconsistencies in the treatment of the fourth quarter 2013 actual capital actions and assumptions about preferred and employee compensation-related issuance over the course of the planning horizon,” the central bank said today in a statement. Eric Kollig, a Fed spokesman, declined to elaborate.

The figures make up part of an evaluation the Fed will release next week that may affect banks’ plans to return capital to shareholders through dividends and share repurchases. The Fed runs the tests to ensure banks have enough capital and cash to withstand an economic slump.

“If the stress test is to give us confidence, we now have doubt,” Mark Williams, a former Fed bank examiner who teaches finance at Boston University, said in a phone interview. “That undermines the whole purpose of the stress test.”

The biggest change to the minimum Tier 1 common ratios was a 0.5 percentage point decline for American Express Co., followed by a 0.3 percentage point increase for both M&T Bank Corp., based in Buffalo, New York, and Chicago-based Northern Trust Corp. The ratio for the U.S. unit of London-based HSBC Holdings Plc fell 0.2 percentage point. An additional 11 banks had changes of 0.1 percentage point.

Spokesmen for New York-based AmEx, M&T and Northern Trust declined to comment. Rob Sherman at HSBC North America didn’t immediately respond to requests for comment.

Banks and regulators have sparred since the test began in 2009 over the methods used to determine the ratios. The banks’ own results can vary significantly from the Fed’s estimates. Among the six biggest U.S. banks, Goldman Sachs Group Inc., Citigroup Inc. and Bank of America Corp. diverged the most from the Fed this year.

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