US banks raise payouts after stress test
In summary, the US banks have passed the stress tests conducted by the Federal Reserve, as expected. Following the tests, the banks are turning to their shareholders and increasing distributions. Here's an overview of some of the announcements from US banks that underwent the stress tests this week:
- JP Morgan Chase increases its dividend from $1.15 to $1.25 per share and announces a new $30 billion share buyback program, effective in July.
- Citigroup increases its dividend from 53 to 56 cents. "Citi will continue to evaluate quarterly share buybacks," the bank added.
- Bank of America increases its dividend from 24 to 26 cents.
- Wells Fargo increases its dividend from 35 to 40 cents. The bank plans to have capacity to repurchase common stock worth $25 billion from the third quarter of 2024 to the second quarter of 2025 and will consider this option.
- Goldman Sachs announces a dividend increase from $2.75 to $3.00 per share, effective from July.
- Morgan Stanley announces a dividend increase from 85 to 92.5 cents per share. The bank also announces a share buyback program of up to $20 billion without a specific expiration date, which is set to begin in the third quarter.
The banks have generally passed the Federal Reserve's annual stress tests, as indicated by the preliminary results released earlier in the week. The Fed stated that the tests showed that the largest US banks had sufficient capital to withstand an economic crisis, while also noting that risk areas within the banks, such as increasing credit card balances, are growing.
"Although the severity of this year's stress test is comparable to that of last year, the test resulted in higher losses due to riskier bank balances and higher expenses," said Michael Barr, the Federal Reserve's deputy chairman for supervision, in a statement.
The stress test results have led to an upward trend in dividends for several US banks. Bank of America, for instance, has boosted its dividend to 26 cents per share. The Fed's stress tests also revealed that JPMorgan Chase & Co. has the capacity to increase its dividend to $1.25 per share and initiate a $30 billion share buyback program. Citigroup's dividend has been raised to 56 cents, with the bank considering future share buybacks. Wells Fargo has increased its dividend to 40 cents and plans to repurchase common stock worth $25 billion within certain timeframes. Goldman Sachs has announced a dividend hike to $3.00 per share, while Morgan Stanley has boosted its dividend to 92.5 cents and launched a share buyback program worth up to $20 billion. Despite these positive developments, the Federal Reserve highlighted potential risks within the banks, such as rising credit card balances.
