Five of the largest U.S. banks said on Friday they would return more cash to shareholders after passing their Federal Reserve stress tests earlier in the week, a show of force that is deepening the rift between the industry giants and the smaller regional rivals.
JPMorgan Chase (JPM) Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS) and Citigroup (C) each announced plans to increase their quarterly dividends, with increases ranging from 2 cents to 25 cents. Goldman was the biggest and Citigroup was the smallest.
Many also touted the results of their regulatory reviews, which the Fed released on Wednesday after assessing whether 23 institutions would be able to weather a severe global recession characterized by 10% unemployment and a 45% plunge in stock markets.
Banks were not allowed to return cash to shareholders until they received the passing grade.
Morgan Stanley CEO James Gorman said Friday the results “demonstrate the sustainability of our transformed business model.” Citigroup CEO Jane Fraser said they “demonstrate Citi’s financial resilience.” Goldman CEO David Solomon said “we are pleased with the progress we have made in reducing the capital intensity of our business.”
JPMorgan CEO Jamie Dimon, who heads the nation’s biggest bank, said the tests showed the banks are “resilient” and “and continue to serve as a pillar of strength to the financial system and economy in general”.
Bank of America (BAC), the nation’s second-largest bank, made no announcement on Friday.
US bank stocks ended June looking their best in months. The KBW Banking Index closed Friday up more than 5% while the KBW Regional Banks Index rose 3%.
No regional bank that passed the Fed’s test announced a dividend increase on Friday, including PNC (PNC) and US Bancorp (USB). Truist (TFC) said it would maintain its current dividend. Many regionals finished the Fed review with smaller buffers than their giant rivals.
The bank with the lowest capital buffer as determined by the Fed was Citizens Financial (CFG), a regional bank based in Rhode Island.
It released a statement on Friday saying it would pursue a $1.3 billion share buyback program, but it made no announcement on a possible dividend payout.
“We are delighted that the Federal Reserve stress test results illustrate Citizens’ strong capital position,” said Citizens Chief Financial Officer John Woods. “We are even more reassured by the fact that the results of our company-led stress tests imply a significantly lower capital drawdown than the Federal Reserve models.”
The bank with the highest capital ratio under the Fed’s “extremely downside scenario” was Charles Schwab (SCHW), one of the lenders that came under intense scrutiny from investors earlier this year as other banks stumbled.
“Given anticipated changes in regulatory expectations and capital requirements, we will provide updates going forward regarding our capital planning and management priorities as conditions and requirements change,” Schwab Chief Financial Officer Peter Crawford said Friday.
Banks are still bracing for a new set of higher capital requirements from the Fed that will force some of them to hold even larger buffers against losses.
These tougher rules were already in the works before the collapse of several regional banks in the spring, but regulators made it clear in the wake of these issues that they wanted to ensure their new approach applied to mid-sized institutions. similar to a First Republic or a Silicon Valley bank, which were among the banks that failed this spring.
Both had more than $200 billion in assets at the time of their bankruptcy.
For investors, “it seems prudent to go in the water after this stress test, but by no means turn your back on these two other regulatory waves that await you,” said Wells Fargo banking analyst Mike Mayo. , at Yahoo Finance.
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