However, KBW concedes that after seeing the test results, its estimates may be too optimistic for some banks.
Goldman “may not have the capacity to meet our bullish capital return forecast, but the capital buffer in DFAST may be enough to meet the consensus forecast for capital return,” KBW said. Morgan Stanley was another bank mentioned as possibly running into some roadblocks with its capital payout plans.
Fitch Ratings said the results to be released Wednesday — formally known as the Comprehensive Capital Analysis and Review — “will be broadly neutral for the banks. However, some banks have not fared as well in recent years, and a secondary qualitative fail could result in negative ratings pressure.”
One of the stumbling blocks could be a new wrinkle added this year called the supplementary leverage ratio — the bank’s top-tier capital divided by its total leverage exposure. All banks eclipsed the Fed’s mandated 3 percent level, but several of them cut it close.
Morgan Stanley had the lowest level at 3.8 percent, while Goldman was next at 4.1 percent and State Street had a projected 4.2 percent level. Morgan Stanley and State Street declined to comment while Goldman did not immediately respond to a request for comment. Analysts generally still expect all three banks to have strong payout ratios.
The best news for the banks, though, may be that this is likely the last year the tests will be this difficult. With a press for deregulation in the Trump administration and some rules already in place that will relax the rules, the road should get smoother ahead. One proposal is to have the tests limited to every two years.
“In general, we expect future stress tests will be less onerous since the Fed is expected to disclose more about the process and CCAR banks should remain very well capitalized even with our expectations for higher return in the upcoming CCAR,” KBW said.
Watch: Changes are on the horizon for the way the Fed stress tests banks.