PNC PNC Financial Services Group Inc

By AnnaMaria Andriotis 

The Federal Reserve approved PNC Financial Services Group Inc.'s capital plan in the regulator's annual stress test released Wednesday.

PNC's plan was approved after the Fed found that the bank could keep lending in a severe economic downturn. The approval clears the way for the Pittsburgh-based firm to reward investors by returning capital through dividend payouts and buying back stock.

PNC's capital plan includes a recommendation to increase the quarterly cash dividend on common stock by $0.04 cents per share, or 7.8%, to $0.55 cents per share, in the third quarter of 2016, according to a bank statement. The bank's board is expected to consider this recommendation at its next scheduled meeting July 7.

The capital plan also included share repurchase programs of up to $2 billion for the fourth-quarter period beginning in the third quarter 2016.

At the low point of a hypothetical recession, the Fed estimated PNC's common equity Tier 1 ratio -- which measures high-quality capital as a share of risk-weighted assets -- would be 6.1%, above the 4.5% level the Fed views as a minimum. The new ratio, unlike the one reported last week by the Fed in a related test, takes into account the bank's proposed capital plan.

PNC's Tier 1 leverage ratio, which measures high-quality capital as a share of all assets, would be as low as 6.4% in a hypothetical recession, above the 4% Fed minimum

The latest stress-test result incorporates quantitative factors assessed in data released by the Fed last week. These included a simulation of how the bank's capital buffers would hold up under a world-wide recession. The Fed's "severely adverse" scenario of financial stress this year included a 10% U.S. unemployment rate, significant losses in corporate and commercial real estate lending portfolios, and negative rates on short-term U.S. Treasury securities.

This second-part of the test also included a qualitative assessment by the Fed of a bank's capital-planning process and internal controls. The Fed has the ability to object to a bank's capital plan on either quantitative or qualitative grounds.

The Fed's Wednesday results are arguably the more important part of the stress-test process since they dictate how much capital will be returned to shareholders. Increased dividends and buybacks can help to bolster a bank's share price.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

June 29, 2016 18:17 ET (22:17 GMT)

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