Dividend and buyback: US banks increase distributions after stress test

Dividend and buyback
US banks raise dividends after stress test

29.06.2024, 10:27 a.m.

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By and large, they passed – that is the conclusion of the stress test of the US banks. As a result, the banks are now turning to shareholders and opening their coffers. They are increasing their quarterly dividends one after the other and devoting themselves to maintaining their share prices.

As expected, the largest US banks announced that they would increase payouts to investors after the stress test. Banks usually respond to the Fed’s investigations in a familiar pattern. The central bank first announced the results of the annual tests, and the banks learned how these would affect the capital they were required to hold. The banks then offset this news with new plans to distribute money to investors through dividends and share buyback programs.

Here is an overview of some of the announcements from US banks that were subjected to stress tests this week:

• JP Morgan Chase increased its dividend from $1.15 to $1.25 and announced a new $30 billion share buyback program that will take effect in July.
• Citi is increasing its dividend from 53 to 56 cents. “Citi will continue to evaluate share buybacks on a quarter-by-quarter basis,” the bank said.
• Bank of America increases its dividend from 24 to 26 cents.
• Wells Fargo is raising its dividend from 35 cents to 40 cents. The bank plans to “have the capacity to repurchase common stock” from the third quarter of 2024 to the second quarter of 2025 and will explore this option.
• Goldman Sachs announced that it will increase its dividend from $2.75 to $3.00 starting in July.
• Morgan Stanley announced that it would increase its dividend from 85 cents to 92.5 cents. The bank also announced a share buyback program of up to $20 billion with no set expiration date, which is set to begin in the third quarter.

Banks have largely passed the Fed’s annual exam, according to results released earlier this week. The Fed said the tests showed that the largest U.S. lenders had sufficient capital to withstand an economic disaster, while pointing out that risk areas at banks, such as rising credit card balances, are increasing.

“While the severity of this year’s stress test is comparable to last year’s, the test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher,” said Michael Barr, the Fed’s vice chairman for supervision, in a statement.