2020 bank stress test results
- V-shaped recovery: A quick recovery where the economy regains much of the output and employment lost by the end of this year.
- Long U-shaped recovery: Only a small share of lost output and employment is regained in 2020.
- W-shaped double-dip recession: A short-lived recovery followed by a second wave of COVID-19 disruption.
Chart 1: Historical and projected 9-quarter loan loss rates

Chart 2: CET1 results in various scenarios

Table 1: Top ten firms that have CET1 ratio in the lower bounds and with the largest declines in CET1 ratio in the traditional stress test
| Ranking | Company Name | Included in KBWB ETF? |
| 1 | BMO Financial | No |
| 2 | Capital One | Yes (3.7%) |
| 3 | Goldman Sachs | No |
| 4 | Ally Financial | No |
| 5 | HSBC North America | No |
| 6 | Citizens Financials | Yes (3.6%) |
| 7 | Regions Financial | Yes (3.3%) |
| 8 | Truist Financial | Yes (4.0%) |
| 9 | Discover Financial | No |
| 10 | MUFG Americas | No |
Source: Federal Reserve System: Dodd-Frank Act Stress Test
Results 2020, iFAST compilations Data as of June 2020 |
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Capped dividends and suspended buybacks in the third quarter this year
Table 2: Banks may be forced to cut their dividends if quarterly dividends is higher than the firm’s average net income in the last four quarters
|
3Q20 dividends |
Average earnings per quarter* |
|
|
JP Morgan (NYSE:JPM) |
0.90 |
1.08 |
|
Citigroup (NYSE:C) |
0.51 |
0.78 |
|
Bank of America (NYSE:BAC) |
0.18 |
0.39 |
|
Wells Fargo (NYSE:WFC) |
0.51 |
-0.33 |
|
Source:
Companies' respective quarterly reports, iFAST compilations |
||
Table 3: US banks continue to be on solid footing
|
CET1 Ratio |
Fed's minimum requirement for CET1 |
|
|
JPMorgan (NYSE:JPM) |
12.4% |
11.3% |
|
Citigroup (NYSE:C) |
11.5% |
10.0% |
|
Bank of America (NYSE:BAC) |
11.6% |
9.5% |
|
Source:
Companies' respective quarterly reports, iFAST compilations |
||
Banks’ valuations remain cheap even when the broader market has recovered
Table 4: Top 3 US commercial banks offering decent upside potential
|
PB ratio |
Target price (USD) |
Current price (USD) |
Upside potential |
Dividend yield* |
|
|
JPMorgan (NYSE:JPM) |
1.6 |
119.1 |
98.7 |
20.7% |
3.6% |
|
Citigroup (NYSE:C) |
0.8 |
61.7 |
51.7 |
19.3% |
3.9% |
|
Bank of America (NYSE:BAC) |
1.1 |
28.8 |
23.6 |
18.5% |
3.0% |
|
Average: |
19.5% |
3.5% |
|||
|
Source: Bloomberg Finance L.P., iFAST estimations *Dividend
for the next four quarters is assumed to be maintained at current levels |
|||||
Chart 3: KBW Nasdaq Bank Index should track its book value

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