Wall Street Breakfast: Don't Stress

All 23 banks have met minimum capital requirements under the Federal Reserve's 2023 bank stress tests and would still be able to lend in a hypothetical "severe global recession." The variables under this year's exam included losses of up to $541B stemming from items like mortgages, credit cards and trading activities, as well as a 40% decline in commercial real estate prices and the unemployment rate rising to a high of 10%. While the largest U.S. banks passed the test, it was only a few months ago that three mid-sized regional banks failed. Higher interest rates led to lower asset values and higher deposit funding costs, at the same time that customers rushed to exits by pulling their deposits. Quote: "Today's results confirm that the banking system remains strong and resilient," said Fed Vice Chair for Supervision Michael S. Barr. "At the same time, this stress test is only one way to measure that strength. We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses." The annual health checks dictate the required size of each bank's "capital buffer," which refers to the extra cushion of capital that's set aside on top of the regulatory minimum needed to support daily business. They're important for stockholders because the results determine the level of dividends and amount of stock buybacks the banks will be permitted to do. Lenders will be allowed to disclose their plans after the market closes on Friday, but some have indicated that they'll wait to announce their returns until they get a clearer picture of new capital requirements. SA commentary: "The bigger changes for banks are likely to come later, as the Fed contemplates new rules tied to Basel III Endgame (also called "Basel IV") and the failures of Silicon Valley Bank and First Republic," writes SA analyst Stephen Simpson. "The largest banks seem less vulnerable, but capital requirement changes could meaningfully impact the profitability of regional banks," like Fifth Third (FITB), Key (KEY), Regions (RF) and others. (151 comments)

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Top News Don't stress Getty Images All 23 banks have met minimum capital requirements under the Federal Reserve's 2023 bank stress tests and would still be able to lend in a hypothetical "severe global recession." The variables under this year's exam included losses of up to $541B stemming from items like mortgages, credit cards and trading activities, as well as a 40% decline in commercial real estate prices and the unemployment rate rising to a high of 10%. While the largest U.S. banks passed the test, it was only a few months ago that three mid-sized regional banks failed. Higher interest rates led to lower asset values and higher deposit funding costs, at the same time that customers rushed to exits by pulling their deposits. Quote: "Today's results confirm that the banking system remains strong and resilient," said Fed Vice Chair for Supervision Michael S. Barr. "At the same time, this stress test is only one way to measure that strength. We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses." The annual health checks dictate the required size of each bank's "capital buffer," which refers to the extra cushion of capital that's set aside on top of the regulatory minimum needed to support daily business. They're important for stockholders because the results determine the level of dividends and amount of stock buybacks the banks will be permitted to do. Lenders will be allowed to disclose their plans after the market closes on Friday, but some have indicated that they'll wait to announce their returns until they get a clearer picture of new capital requirements. SA commentary: "The bigger changes for banks are likely to come later, as the Fed contemplates new rules tied to Basel III Endgame (also called "Basel IV") and the failures of Silicon Valley Bank and First Republic," writes SA analyst Stephen Simpson. "The largest banks seem less vulnerable, but capital requirement changes could meaningfully impact the profitability of regional banks," like Fifth Third (FITB), Key (KEY), Regions (RF) and others. (151 comments)       Featured Here's how you can be a better investor with Premium Research shows that individual investors collectively underperform the stock market, because their decisions are often driven by emotions. We believe that as an investor you can do really well if you find opportunities based on 360-degree analysis - not hype. Seeking Alpha Premium's unparalleled stock coverage gives you the insights you need to stay ahead of the curve. With timely insights on stocks, ETFs, and more, you can track the investments that matter most to you. Plus, you can discover hidden gems and compelling new ideas with our exclusive stock ratings. Go Premium and experience its incredible value for yourself. Go Premium now Media Hollywood strike U.S. production houses fear a looming shutdown as actors are preparing to join writers in a double strike this weekend. Actors are demanding higher pay, along with writers who have been on strike for almost nine weeks now. A walkout by the Writers Guild of America has already shut down the final season of Netflix's (NFLX) Stranger Things, an HBO (WBD) prequel of Game of Thrones, and paused production on Disney's (DIS) Thunderbolts and Blade. Other studios involved include Amazon (AMZN), Apple (AAPL), NBCUniversal (CMCSA), Paramount (PARA) and Sony (SONY). (3 comments)       Healthcare Artificial sweeteners Aspartame, an artificial sweetener commonly used in diet sodas and low-calorie packaged food, is expected to be declared a possible carcinogen next month by the World Health Organization's cancer research arm. A joint FAO/WHO panel on food additives is also reviewing aspartame use and will announce its findings around the same time. While the new ruling could have a major impact, the IARC has historically faced criticism for needlessly causing alarm. Also expect a response from beverage giants such as Coca-Cola (KO), PepsiCo (PEP) and Dr Pepper/Snapple (KDP). (17 comments)       Stocks Most crowded shorts With positioning having an increasing influence on stock prices, Citi is adding a new Short Stock Crowding Model to help investors identify opportunities. While not a signal to buy or sell any stocks, the list helps gauge risk for stocks to assist in adjusting positioning, with the "traditional longer-term, long-only investor" becoming "less dominant," Citi says. Some of the most crowded shorts include Schlumberger (SLB), McDonald's (MCD), Nvidia (NVDA) and Alphabet (GOOG) (GOOGL). See the full list of the most and least crowded short positions. (59 comments)       Today's Markets In Asia, Japan +0.1%. Hong Kong -1.2%. China -0.2%. India closed.  In Europe, at midday, London -0.2%. Paris +0.9%. Frankfurt +0.2%. Futures at 7:00, Dow +0.3%. S&P +0.3%. Nasdaq +0.4%. Crude +0.3% at $69.74. Gold -0.3% at $1,916.70. Bitcoin +1.1% to $30,695. Ten-year Treasury Yield +3 bps to 3.75%. Today's Economic Calendar 8:30 GDP Q1 8:30 Initial Jobless Claims 8:30 Corporate Profits 10:00 Pending Home Sales 10:30 EIA Natural Gas Inventory 4:30 PM Fed Balance Sheet  Companies reporting earnings today » What else is happening... Micron Technology (MU) pops as Q3 loss not as bad as feared. Apple (AAPL) nears $3T, but Wedbush thinks it could be worth more. Overstock (OSTK) starts integrating Bed Bath (OTCPK:BBBYQ) assets. Office REIT stocks dip as vacancy rates rise, Fed poised to hike. Virgin Galactic's (SPCE) first commercial spaceflight set for later today. Why did Carvana (CVNA) jump? Shorts are getting put to the test. Uranium can potentially provide shelter from an economic meltdown. Microsoft (MSFT)-Activision (ATVI): Ruling on FTC suit next week. Nvidia's (NVDA) revenue could be hit by new AI chip curb - analysts. Consumer jolt: General Mills (GIS) CEO says no food disinflation yet. Seeking Alpha's Wall Street Breakfast Podcast Seeking Alpha's Wall Street Breakfast podcast brings you all the news you need to know for your market day. Released by 8:00 AM ET each morning, it is a quick listen that you can put on as you get ready to start your working day.
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