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BB&T's Revised Capital Plan Approved

Zacks Equity Research

Recently, Federal Reserve (Fed) has approved BB&T Corporation’s (BBT) revised 2013 capital plan. Earlier this year, the Fed had rejected the capital plan due to certain unspecified qualitative factors.

According to management, the rejection was not on grounds of weakness in the company’s capital strength, earnings power or financial condition. In fact, the company’s Tier 1 common ratio of 9.4% was well above the regulatory minimum of 5%. However, BB&T’s 2012 annual report stated that it had to revaluate its risk-weighted assets (RAWs) to incorporate unfunded lending commitments. This increased the company’s RAWs and consequently prompted the Fed to turn down the 2013 capital plan.

The new capital plan includes amendments which take into consideration possible future capital requirements and an unpredictable economic scenario. However, the particular improvisations in the plan are not known as the company is not allowed to reveal its former capital plan.

Further, the current capital plan does not declare any imminent dividend hike. In January, BBT last raised its dividend by 15% to 23 cents per share.

As BB&T is one of the most well capitalized U.S. banks, the earlier rejection of its capital plan had come as a surprise. Nevertheless, approval of its revised capital plan reinforces the capital strength of the company.

Moreover, BB&T reported its strongest quarterly performance in second-quarter 2013. The quarterly earnings of 77 cents per share beat the Zacks Consensus Estimate of 74 cents and compared favorably with 72 cents earned in the year-ago quarter.

With the sanction of BB&T’s capital plan, Ally Financial Inc. remains as the sole bank whose capital plan awaits the approval of the Fed. Notably, to improve the capital base, Ally Financial intends to sell its shares in the near future.

Moreover, though banking giants such as The Goldman Sachs Group, Inc. (GS) and JPMorgan Chase & Co. (JPM) received the Fed’s approval for their proposed capital plans, they will need to resubmit their plans by the end of third-quarter 2013. These two banks have been asked to resubmit the capital plans due to certain weaknesses recognized in the capital planning processes.

Currently, BB&T carries a Zacks Rank 3 (Hold). BankUnited, Inc. (BKU) is a better performing bank with a Zacks Rank #1 (Strong Buy).

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