Bank sector rallies after passing stress test, Bank of America underperforms

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Shares in the biggest U.S. banks were rising on Friday after they all passed the Federal Reserve’s annual health check — but Bank of America shares underperformed after the test implied it needs a larger-than-expected increase to its capital buffer, which could limit resources for share buybacks.

While the broader equity market rallied on Friday, U.S. shares of UBS Group AG and Credit Suisse Group AG were outperforming, along with Wells Fargo & Co, among the group of 34 financial institutions that underwent the Fed’s so-called stress test.

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While all the companies easily passed, the report implied a big variation in the size of required stress capital buffers (SCB): the amount of money they would need to keep aside in order to stay afloat in a hypothetical downturn.

Bank of America Corp shares were up 0.3% while Citigroup Inc shares were up 2.3% after the report, which came out after the market closed on Thursday. JPMorgan Chase & Co shares were up 2.1%.

Credit Suisse analyst Susan Roth Katzke said it wasn’t a surprise that all the banks passed but that “the surprise (not a good one) was in the magnitude of the SCB increases concentrated in a few.”

Roth Katzke cited SCB increases for Bank of America, Citi and JPMorgan among the group of banks she covers.

“On average, across our banks, higher SCBs translate to less excess capital — less excess, but generally sufficient, if not ample capital,” said the analyst.

UBS U.S. shares were last up 6.3% while Wells Fargo was up 6.6%, followed by Credit Suisse’s 5.4% rise. Ally Financial was also up more than 5%, while Discover Financial was up 6.0%.

(Reporting by Sinéad Carew, Elizabeth Dilts Marshall and Pete Schroeder; editing by Jonathan Oatis)

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