BBT BB and T Corporation

By AnnaMaria Andriotis 

The Federal Reserve approved BB&T Corp.'s capital plan in the regulator's annual stress test released Wednesday.

BB&T'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 Winston-Salem, N.C.-based firm to reward investors by returning capital through dividend payouts and by buying back stock.

BB&T's capital actions include a recommendation to increase the quarterly dividend by two cents a share to $0.30, a 7% increase; the bank's board will consider this on July 26. The plan also includes share buybacks of up to $640 million beginning in the third quarter 2016.

The Fed stress test result "allows us to provide one of the strongest dividend payouts among regional banks," BB&T Chairman and Chief Executive Officer Kelly King said in a statement.

At the low point of a hypothetical recession, BB&T'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.

BB&T'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 it dictates 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 17:55 ET (21:55 GMT)

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