Fed orders Goldman Sachs and JPMorgan to revise capital plans

Approves capital plans of 14 of the 18 large banks

New Statesman
Photograph: Getty Images.

The Federal Reserve System (Fed) has ordered Goldman Sachs and JPMorgan Chase to revise their capital plans by the end of the third quarter of 2013, as it found weaknesses in their procedures.

The Fed unconditionally approved share buyback and dividend payout plans of 14 of the 18 large banks. However, it blocked capital plans of Ally Financial and BB&T.

For the first time since the 2008 financial crisis, Fed allowed Bank of America (BofA) and Citigroup to launch buyback programmes and approved payout plan of American Express after it resubmitted with a lower request. BofA is planning to repurchase $5bn of stock and redeem $5.5bn of preferred shares, while Citigroup is planning a $1.2bn buyback.

Senior Fed officials said that the weaknesses in Goldman and JPMorgan’s capital planning processes were significant enough to warrant immediate remediation.

As part of its stress tests, Fed officials found that Goldman and JPMorgan have showed losses that were lower than their estimates.

Gerard Cassidy, analyst at RBC Capital Markets, told the Financial Times: “When you look at today’s results and compare them to two years ago, it’s incredibly better today. And two years’ from now it will be even better than it is now.”

Overall, the banks announced plans for about $30bn of share buybacks.

Meanwhile, shares of Goldman Sachs and JPMorgan declined more than 2 per cent in after-market trading.