Tags: Fed | Bank | test | stress

Strategist: Don't Trust Fed's Bank-Stress Test Results

Thursday, 15 March 2012 07:57 AM

Peter Elston, Asia Strategist at Aberdeen Asset Management, says results from the Fed's bank-stress tests aren't to be trusted.

"I think a lot of banks are still overstating assets and they haven't recognized problem loans, to the extent that they should have done and it's very difficult to trust numbers," tells CNBC.

"All this stress test really does is it probably makes people slightly less skeptical than they were before and you get a bit of a rally," Elston says. "The market doesn't trust the numbers."

Editor's Note:The IRS’ Worst Nightmare — How to Pay Zero Taxes

Banks still face difficulties, and many non-performing loans are still not being classified as such, Elston notes, taking some of the cheer out of dividend announcements made by some banks.

"This is where you're really caught between a rock and a hard place, if you don't pay dividends you find it hard to raise capital, and if you do pay dividends you weaken your capital base and make it less likely you'll survive another downturn," says Elston.

Reuters reports that on the basis of “stress tests” it ran, the Federal Reserve has given permission to most of the largest U.S. banks to return capital to their shareholders.

JPMorgan Chase announced that it would buy back as much as $15 billion of its stock and raise its quarterly dividend to 30 cents a share, up from 25 cents a share.

Editor's Note:The IRS’ Worst Nightmare — How to Pay Zero Taxes

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Thursday, 15 March 2012 07:57 AM
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