Brexit slammed U.S. bank stocks, but analysts say stress tests may show banks are quite resilient, as Fred Katayama reports.
U.S. bank stocks took a further beating Monday morning on Brexit, Britain's vote to leave the European Union. But investors may have overlooked their fortitude. On Thursday, the 33 banks that participated all passed the Fed's standardized stress test for capital requirements. The crisis scenarios in the two rounds of tests were much tougher than what the banks have so far faced from Brexit. Those scenarios assume the stock market would drop by half and that unemployment would surge to 10 percent, among other things. CLSA analyst Mike Mayo said, "This is a real-world test that ... should help incrementally in times such as this and show the relative strength of U.S. banks." He thinks the tests will show banks will be able to keep their dividends stable and possibly boost payouts as they deal with the Brexit fallout. Brexit may mean banks will face a longer period of ultra-low interest rates. And some are considering relocating staff to other parts of Europe, which would drive up costs. Investors will get more information Wednesday when the Fed releases its second set of results. Those tests will judge the quality of each bank's plans for managing risk.