How The Stress Test Moved Banks Today, STI, C, WFC, JPM, GS, BAC

Citigroup Inc gapped down on failing their stress test on Tuesday, The Federal Reserve released the results of stress tests done on 19 U.S. Large banks, of which four were unable to pass the tests and lacked a minimum Tier 1 common capital ratio of at least 5%. Citigroup Inc.(NYSE:C), the third largest Bank in U.S. also failed to meet the criteria as it had a tier 1 ratio of 4.90%.

The other three financial institutions that did not pass the Fed's hypothetical stress tests were Ally Financial, SunTrust Banks, Inc.(NYSE:STI) and Metlife Inc(NYSE:MET). Shares OF MET slumped over 4% in trade. JPMorgan Chase & Co.(NYSE:JPM), Wells Fargo & Company(NYSE:WFC), Goldman Sachs Group, Inc.(NYSE:GS) and other large bank holding companies got a fed bump as their stocks mostly rose during the day. Goldman dropped on an employee op-ed piece in the time that was all the rage today. The employee said Goldman's culture is full of greed. The banks, who could not met the threshold may be forced to raise additional capital via equity issuing. The Fed made the results public two days prior than planned after JPMorgan Chase sent out a press release late Tuesday saying it had passed the test. Apparently there was some miscommunication. The fed was worried some of the information had already been leaked.

The overall financial system is much solid than it was in 2009. In the first quarter of that year, the 19 companies stress-tested by the Fed held $420 billion in cash and assets easily convertible to cash, which soared to $759 billion by the end of 2011. We have already seen some major announcements by few banks regarding dividends hike and buy back plans. First came from JPMorgan Chase & Co.(NYSE:JPM), just before the market closed on Tuesday, announced a 5 cents hike in its dividends to 30 cents and plans to buy back $15 billion of its stock by the first quarter of 2013. Shares of JPM soared about 7% after the announcement and further boosted the over sentiment. Also, Wells Fargo & Co. said it will boost its dividend to 22 cents per share from 12 cents. Shares of WFC are down 1.75% after rising over 5% in the previous trading session. The Fed didn't regulate any of the banks that failed its test to raise specific sums yet. However, it won't permit them to increase dividends or buy back shares, and it told them to submit plans within 30 days outlining how they plan to get stronger.

Some analysts said the stress test was not severe enough. Probably put them on mute because this test was as draconian as can possibly be. On top of this, this recession assumes a further drop in home prices given the already 33% drop since 2006. So in reality it is assuming a 67% drop from 2006 and is not really realistic.