11:24 AM EDT, 06/27/2024 (MT Newswires) -- The US Federal Reserve's stress test again had a 100% pass rate, as expected, with none of the 31 major banks tested dropping below their minimum capital requirements during the severely adverse scenarios, Morgan Stanley said Thursday in a note to clients.

"This was in line with our expectations given 2023 pass rate was 100%," the note said.

The Fed said late Wednesday the results of its annual stress test of 31 large banks showed the lenders are "well positioned to weather a severe recession and stay above minimum capital requirements" despite enduring steeper losses than last year's stress test. The test showed the banks remained above minimum common-equity tier 1 capital requirements during the hypothetical recession after absorbing projected hypothetical losses of almost $685 billion.

"The vast majority of banks in our coverage have significant excess capital, even with higher stressed capital buffers at some banks. As a result, we continue to model a material increase in buybacks next year," Morgan Stanley said.

The investment firm also noted, however, that the stress tests suggested "higher capital requirements for more than half our US banks coverage."

"More fireworks than expected, as [stressed capital buffers] increased for 57% of banks in our coverage despite the test scenario being largely unchanged [year on year]," the note said.

Morgan Stanley said that of 21 banks in its US banks coverage that participated in this year's stress test, stressed capital buffers rose for 12 banks -- Goldman Sachs ( GS ) , Wells Fargo ( WFC ) , Capital One Financial ( COF ) , Bank of America ( BAC ) , Fifth Third Bancorp ( FITB ) , US Bancorp ( USB ) , KeyCorp ( KEY ) , Citizens Financial (CFG), Discover Financial Services ( DFS ) , JPMorgan ( JPM ) , Ally Financial ( ALLY ) and Regions Financial (RF).

Morgan Stanley cut Goldman's price target to $475 from $486.

"We believe the biggest contributor to the increase was a weaker P&L composition for the banks at the start of the test in 4Q23, specifically higher credit card and C&I NCOs, lower fees and higher expenses," the note said.

Meanwhile, stressed capital buffers decreased for three banks: Huntington Bancshares ( HBAN ) , Citigroup ( C ) and M&T Bank (MTB), the investment firm said.

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