BB&T Corporation (BBT)’s Southern Charm (and Prudent Risk Management) Wins Over Regulators

If you’re an investor in BB&T Corporation (NYSE:BBT) , then the Federal Reserve’s most recent round of stress tests is arguably a cause for celebration. Released yesterday, the popular regional lender emerged from the central bank’s gauntlet in some of the best shape of its peers. The charts and discussion below examine how the company’s capital and earnings held up under the Fed’s “severely adverse” economic scenario.

The purpose of the stress tests is to gauge how the capital bases of the nation’s largest financial institutions hold up in the face of economic and financial turmoil. Among other things, the most extreme case assumes that real GDP declines an average of 4% this year, unemployment ratchets up to 12.1% by the second quarter of next year, and that home prices plummet by 20% over the next 24 months.

As you can see in the chart below, BB&T Corporation (NYSE:BBT)’s Tier 1 common capital ratio hardly budged despite these assumptions. Starting from 9.5% at the end of last September, it bottomed out at 9.4% over the hypothetical time period extending from the fourth quarter of last year through the end of 2014. This hardly perceptible decline not only far exceeds the Fed’s 5% reference rate, but it also makes BB&T Corporation (NYSE:BBT) one of the best performing banks in this regard, behind only the The Bank of New York Mellon Corporation (NYSE: BK). By comparison, the average Tier 1 common capital ratio of the 18 institutions tested fell by a third, down to 7.4%.

Source: Federal Reserve.

With respect to net income, BB&T Corporation (NYSE:BBT) fared equally as well. Its hypothetical pre-tax earnings for the nine-quarter time period came in at $600 million. This greatly exceeded the 18-institution average loss of $10.8 billion. As above, the Bank of New York Mellon fared the best, with $5.5 billion in earnings despite the assumed economic Armageddon.

Source: Federal Reserve.