Capital One squeaks by Fed's dividend, buyback tests

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(Reuters)

Capital One (COF) passed the second round of the Federal Reserve’s stress tests by the skin of its teeth.

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The bank, headquartered in McLean, Va., was the only bank to get conditional approval and was ordered to “address weaknesses in its capital planning process” and resubmit a revised capital plan by December 28.

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" [We]are fully committed to addressing the Federal Reserve's concerns with our capital planning process in a timely manner," said Richard D. Fairbank, Chairman and Chief Executive Officer in a statement. "The capital distributions communicated in today's announcement were assumed in the 2017 EPS guidance we provided on our first quarter earnings call. Consistent with our normal quarter-end processes, we expect to affirm or update our guidance on our second quarter earnings call scheduled for July 20, 2017."

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Shares fell in extended trading on Wednesday.

Still, the bank is allowed to return profits to shareholders and it released details immediately following the results. The bank's board approved plans to repurchase up to $1.85 billion of shares of common stock through the end of the second quarter of 2018; it expects to maintain the current quarterly dividend of $0.40 per share, subject to Board approval. 

Capital One, whose shares have dropped 7 percent this year, was the only bank to get dinged by the Fed. The 33 other U.S. banks were cleared to raise their dividends and buy back shares, judging their financial foundations sturdy enough to withstand a major economic downturn. Those allowed to raise dividends or repurchase shares include the four biggest U.S. banks — JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC).

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It was the first time in seven years of annual "stress tests" that every bank assessed by the Fed won approval for its capital plans.

The Associated Press contributed to this report.