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Large Banks to Boost Dividends After Clearing Stress Test
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Some of the large U.S. banks, including JPMorgan (JPM - Free Report) and Wells Fargo, said on Friday that they will return more cash to shareholders after the clearance of the 2023 stress test. This year’s annual exercise indicated that banks have sufficient capital to withstand a severe economic downturn.
Going into the 2023 stress test, analysts were forecasting conservative payouts from the banks on the back of potential stringent regulatory capital requirements and ambiguity over the macroeconomic backdrop, including probable recession next year.
But the stress test solidified the notion that large banks are resilient. Results showed that the 23 participating banks have enough capital to absorb the $541 billion projected losses on loans and other positions. Hence, several banks will now be subjected to smaller stress capital buffer (SCB) requirements. This, thus, opened the doors for bigger-than-expected payouts.
JPM, the largest U.S. bank, intends to raise the quarterly dividend by 5% to $1.05 per share. This follows no change in dividend payout last year. Jamie Dimon, Chairman and CEO, said, “We continue to maintain a fortress balance sheet with strong capital levels and robust liquidity, and we remain prepared for a broad range of potential outcomes, including potentially higher future capital requirements from the finalization of the Basel III capital rules.” The company also plans to continue with its previously announced share repurchase program.
Likewise, Wells Fargo announced plans to hike dividend to 35 cents per share from the current 30 cents. Also, over the four-quarter period through the second quarter of 2024, WFC has the capacity to repurchase shares.
Further, major global investment banks – Goldman Sachs and Morgan Stanley (MS - Free Report) – have plans to increase quarterly payouts, despite a challenging operating backdrop. Both GS and MS intend to increase dividends by 10% to $2.75 and 85 cents, respectively.
Citigroup (C - Free Report) , too, announced a dividend hike, though of a smaller degree. The company was the only large bank whose SCB requirement will increase to 4.3% from 4% following this year’s stress test. C will increase the quarterly dividend by 4% to 53 cents per share.
Among the large banks, the only exception was Bank of America (BAC - Free Report) , which didn’t come up with any announcement in this regard.
‘No Show’ From Regional Banks
The regional banks, including U.S. Bancorp and Truist Financial (TFC - Free Report) , in focus since March 2023 following the huge deposit flight and subsequent collapse of three banks – Signature Bank, Silicon Valley Bank and First Republic Bank – did not come up with any new capital return plans.
It must be noted that several regional banks cleared the stress test requiring smaller SCB than large banks.
In a release, TFC announced plans to keep the quarterly dividend unchanged at 52 cents per share.
Parting Thoughts
The stress results and the subsequent increases in payouts by banks show that the industry is well prepared to confront any challenges.
Yet, banks continue to brace for higher capital requirements from the regulators. This is a major near-term headwind and seems to have held back regional banks from coming up with new capital plans.
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Large Banks to Boost Dividends After Clearing Stress Test
Some of the large U.S. banks, including JPMorgan (JPM - Free Report) and Wells Fargo, said on Friday that they will return more cash to shareholders after the clearance of the 2023 stress test. This year’s annual exercise indicated that banks have sufficient capital to withstand a severe economic downturn.
Going into the 2023 stress test, analysts were forecasting conservative payouts from the banks on the back of potential stringent regulatory capital requirements and ambiguity over the macroeconomic backdrop, including probable recession next year.
But the stress test solidified the notion that large banks are resilient. Results showed that the 23 participating banks have enough capital to absorb the $541 billion projected losses on loans and other positions. Hence, several banks will now be subjected to smaller stress capital buffer (SCB) requirements. This, thus, opened the doors for bigger-than-expected payouts.
JPM, the largest U.S. bank, intends to raise the quarterly dividend by 5% to $1.05 per share. This follows no change in dividend payout last year. Jamie Dimon, Chairman and CEO, said, “We continue to maintain a fortress balance sheet with strong capital levels and robust liquidity, and we remain prepared for a broad range of potential outcomes, including potentially higher future capital requirements from the finalization of the Basel III capital rules.” The company also plans to continue with its previously announced share repurchase program.
Likewise, Wells Fargo announced plans to hike dividend to 35 cents per share from the current 30 cents. Also, over the four-quarter period through the second quarter of 2024, WFC has the capacity to repurchase shares.
Further, major global investment banks – Goldman Sachs and Morgan Stanley (MS - Free Report) – have plans to increase quarterly payouts, despite a challenging operating backdrop. Both GS and MS intend to increase dividends by 10% to $2.75 and 85 cents, respectively.
Citigroup (C - Free Report) , too, announced a dividend hike, though of a smaller degree. The company was the only large bank whose SCB requirement will increase to 4.3% from 4% following this year’s stress test. C will increase the quarterly dividend by 4% to 53 cents per share.
Among the large banks, the only exception was Bank of America (BAC - Free Report) , which didn’t come up with any announcement in this regard.
‘No Show’ From Regional Banks
The regional banks, including U.S. Bancorp and Truist Financial (TFC - Free Report) , in focus since March 2023 following the huge deposit flight and subsequent collapse of three banks – Signature Bank, Silicon Valley Bank and First Republic Bank – did not come up with any new capital return plans.
It must be noted that several regional banks cleared the stress test requiring smaller SCB than large banks.
In a release, TFC announced plans to keep the quarterly dividend unchanged at 52 cents per share.
Parting Thoughts
The stress results and the subsequent increases in payouts by banks show that the industry is well prepared to confront any challenges.
Yet, banks continue to brace for higher capital requirements from the regulators. This is a major near-term headwind and seems to have held back regional banks from coming up with new capital plans.