Prince Al-Waleed bin Talal

After the Stress Tests: What Will Banks Do Now?

It may be a long, hard slog for shareholders of Citigroup (NYSE:C) and the other three companies that failed the Federal Reserve ’s stress tests.

Without any hope for returning capital to shareholders for this year, the four banks run the risk of falling behind.There’s still good news, though: 15 of the 19 banks passed the tests, meaning they might start being more aggressive in how they use their money. The bad news is, the big banks have been hitting their profit numbers by using all sorts of accounting moves to paper over losses. Without these moves, and with real estate and European debt still hamstringing their balance sheets, banks like Citigroup and Bank of America (NYSE:BAC) will have a tough time trying to raise their dividends or do stock repurchases. Bank shares trade well below asset values, some at 40% of tangible book value, like Bank of America, meaning investors may expect big writedowns in the future.The accounting moves include wonky sounding things like debt valuatio...

Read More ›