The Comprehensive Capital Analysis and Review results are in, and not surprisingly, KeyCorp (NYSE:KEY) has been given the go-ahead by the Federal Reserve to institute its share buyback program. Considering how well the bank performed on the stress tests, investors likely expected some sharing to be coming their way.
KeyCorp (NYSE:KEY) easily beat the Fed’s minimum requirement of 5% for a stress scenario ratio that included proposed dividend and buyback actions. This means that KeyCorp (NYSE:KEY) will be paying a 10% larger dividend very soon:
Though the dividend is less than last year, when the bank hiked its payout from $0.12 on an annualized basis, to $0.20. KeyCorp (NYSE:KEY) will be embarking upon a share repurchase program, however — and it’s a much larger one than the $344 million buyback that KeyCorp instituted last year.
It’s all about planning
One thing that came through loud and clear regarding CCAR is the fact that planning matters. The Fed looked most kindly on banks that had plump capital cushions post-scary scenario, as well as an airtight capital plan. For those without that dynamic duo, the result was a thumbs-down from regulators.
Just ask Goldman Sachs Group, Inc. (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM). These big banks didn’t get an outright objection from the Fed, but they were instructed to submit new capital plans by the end of October to fix weaknesses the Federal Reserve found in their original plans.
For BB&T Corporation (NYSE:BBT) , the news was much worse: an outright objection. Why? Detail are fuzzy, but the Fed notes that it may object to either “qualitative or quantitative concerns” it has about a bank’s plan, based on specifics about that particular bank, or the general economy. For BB&T Corporation (NYSE:BBT), which came through the stress tests with a 9.4% Tier 1 ratio, as well as a 7.76% final, post-severe stress grade, the issue appears to be a change the bank recently made in the way it assesses its risk-weighted assets. Since this value features prominently in the Fed’s formula, BB&T Corporation (NYSE:BBT) failed the test.
Onward and upward for KeyCorp
KeyCorp (NYSE:KEY)’s performance on the Federal Reserve tests, combined with the bank’s outstanding loan growth, net interest margin expansion, and rise in book value have obviously made investors grin. The stock is trading near its 52-week high and will likely continue its upward trajectory. Once again, a regional bank shows that it can hold its own against the big boys.
The article KeyCorp Announces Buyback, Bigger Dividend on the Way originally appeared on Fool.com and is written by Amanda Alix.
Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase. and KeyCorp.
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