Fed Approves PNC's Capital Plan -- Update
June 29 2016 - 5:32PM
Dow Jones News
By AnnaMaria Andriotis
The Federal Reserve approved PNC Financial Services Group Inc.'s
capital plan in the regulator's annual stress test released
Wednesday.
PNC's plan was approved after the Fed found that the bank could
keep lending in a severe economic downturn. The approval clears the
way for the Pittsburgh-based firm to reward investors by returning
capital through dividend payouts and buying back stock.
PNC's capital plan includes a recommendation to increase the
quarterly cash dividend on common stock by $0.04 cents per share,
or 7.8%, to $0.55 cents per share, in the third quarter of 2016,
according to a bank statement. The bank's board is expected to
consider this recommendation at its next scheduled meeting July
7.
The capital plan also included share repurchase programs of up
to $2 billion for the fourth-quarter period beginning in the third
quarter 2016.
At the low point of a hypothetical recession, the Fed estimated
PNC's common equity Tier 1 ratio -- which measures high-quality
capital as a share of risk-weighted assets -- would be 6.1%, above
the 4.5% level the Fed views as a minimum. The new ratio, unlike
the one reported last week by the Fed in a related test, takes into
account the bank's proposed capital plan.
PNC's Tier 1 leverage ratio, which measures high-quality capital
as a share of all assets, would be as low as 6.4% in a hypothetical
recession, above the 4% Fed minimum
The latest stress-test result incorporates quantitative factors
assessed in data released by the Fed last week. These included a
simulation of how the bank's capital buffers would hold up under a
world-wide recession. The Fed's "severely adverse" scenario of
financial stress this year included a 10% U.S. unemployment rate,
significant losses in corporate and commercial real estate lending
portfolios, and negative rates on short-term U.S. Treasury
securities.
This second-part of the test also included a qualitative
assessment by the Fed of a bank's capital-planning process and
internal controls. The Fed has the ability to object to a bank's
capital plan on either quantitative or qualitative grounds.
The Fed's Wednesday results are arguably the more important part
of the stress-test process since they dictate how much capital will
be returned to shareholders. Increased dividends and buybacks can
help to bolster a bank's share price.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com
(END) Dow Jones Newswires
June 29, 2016 18:17 ET (22:17 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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