KBW’s CCAR Report Shows Mobile Payments Operations Mostly In Line With Estimates

July 2, 2019         By: Steven Anderson

It’s easy to forget, sometimes, that the financial services industry is one of the most heavily-regulated industries in the United States, and often in the world itself. Indeed, the Federal Reserve recently released its 2019 Comprehensive Capital Analysis and Review (CCAR) study, and the folks at Keefe, Bruyette & Woods (KBW) dropped word our way about what the study had to say. In summary, the results generally went about the way KBW figured they would.

KBW’s response to the CCAR report came with a look at three particular firms in a note: American Express, Capital One, and Discover Financial Services. There was good news and bad news to be had from the analysis; KBW expects that the CCAR study will deliver benefit to Capital One, upping its 2020 earnings per share (EPS) estimates half a percent, while Discover will take a bit of a hit, seeing those same figures lowered one percent.

Meanwhile, the estimated capital return yield (the total distribution divided by the market cap, KBW explains) will improve in both cases. KBW expects capital return yield of 8.8 percent for Discover and seven percent for Capital One. The estimated total return yield (the net reduction in shares plus dividend yield) will rise 7.8 percent for Discover and 5.6 percent for Capital One.

KBW discussed American Express in a bit of commentary from the company itself; it doesn’t intend to discuss specifics around its own capital plans, KBW noted, but American Express is planning to maintain Common Equity Tier 1 (CET1) ratios between 10 and 11 percent. The company’s capital allocation strategy is also poised to remain similar to recent months.

Basically, some of the biggest mobile payments operations around have gone through some of this testing—which would seem to be just part of the larger overall body of tests—and have come out the other side in fair order, with relevant plans created in response to any regulatory shortcomings. It should provide a measure of extra confidence in dealing with these firms.

Considering how important security is to mobile payments users, adherence to regulatory demands should prove a welcome development. It’s just one more point that helps keep the end-user protected, and able to confidently put these tools to work.