The Federal Reserve Bank released stress tests 2 days early, prompted by New York branch class A shareholder/director Jamie Dimon, who also happens to be the CEO of government-backstopped megabank, JP Morgan (JPM).
Dimon announced an equity buy back plan for JP Morgan and a dividend hike, timed to counter the negative sentiment in financial equities that followed the mild Fed statement which implied a bit of a wait for further printing. Waiting longer to exchange toxic assets for fresh cash will test institutions facing loan losses and declining net interest margin due to interest price fixing to a near-zero integer by the Fed. Dimon wanted to jump the gun and give JPM an advantage prior to the test results.
The strategy worked, The Dow Jones industrial average rose 218 points and closed at its highest level since the end of 2007. Sensing the opportunity to time the release of the stress test results with the change in sentiment offered by Dimon, the Fed took action.
We then learned that Ally Bank/GM, MetLife, Suntrust and the third largest bank, Citibank, had failed.
Prompt Citibank’s childish Reply today, amounting to “nuhh-uhhh” from head of corporate communications, Edward Skyler, “It is important to make clear that Citi did not ‘fail’ the stress test.”
Citibank believes it did not fail the Federal Reserve’s stress test “in its opinion,” yet potential losses are worst in class, and a close tie with Capital One, a credit card issuer—who naturally have higher rates of loan losses than traditional banks.