Source: Jin10 Data
Banks complain that some aspects of the Federal Reserve's annual stress tests are opaque and it is difficult to understand how certain results are obtained.
JPMorgan said late on Wednesday that the Federal Reserve had overestimated a key indicator of revenue in the bank's recent stress test, with its estimated losses in the test actually expected to be higher than the Fed's findings.
Unusually, the bank released a statement just minutes before midnight Eastern Time disclosing its response to the Fed investigation.
JPMorgan said that the Fed's projection for an indicator called 'other comprehensive income' (OCI) 'appeared too high'. OCI refers to income, expenses, and losses outside of net income.
According to the Fed's projected income, earnings, and losses for large banks through 2026, JPMorgan would receive $13 billion in OCI, more than any other of the 31 banks tested this year. The Fed also estimated that JPMorgan would face around $107 billion in loan, investment, and trading losses in this scenario.
But the bank said, 'If our analysis is correct, the resulting losses would be slightly higher than those disclosed by the Fed.'
According to one insider, this error could mean that JPMorgan may need more time to finalize its share buyback plans. The bank is expected to start announcing these plans after Friday's close.
Earlier that day, the Fed announced that all 31 banks participating in the annual stress test had passed, withstanding hypothetically severe economic downturns while maintaining adequate levels of capital and capacity to lend to consumers and businesses. JPMorgan's disclosure contradicts that news.
Last year, Bank of America and Citigroup made similar disclosures, saying their estimates of future revenues differed from the Fed's results.
Banks complained that certain aspects of the annual stress tests were opaque and that it was difficult to understand how the Fed arrived at some of its conclusions.
Editor/Lambor