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JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Wells Fargo are among the major US banks that have announced plans to increase payouts to shareholders following the results of government-mandated stress tests. These tests indicated that these banks will be subject to lighter capital requirements.
The stress test results and the possibility of increased dividends come as regulators finalize stricter capital standards for US banks.
The Federal Reserve recently released the results of its annual stress tests, revealing that the largest 23 US banks would face significant losses in a hypothetical economic crisis. However, they will still have enough capital to absorb these losses.
Following the release of the stress test results, several banks have updated their dividend plans, taking advantage of the reduced capital requirements to allocate more resources to shareholder payouts.
JPMorgan has announced that it will increase its quarterly dividend from $1 to $1.05 per share, Morgan Stanley plans to raise its dividend from 78 cents to 85 cents, Wells Fargo will increase its dividend from 30 cents to 35 cents, and Goldman Sachs intends to raise its dividend from $2.50 to $2.75 per share.
Citigroup, on the other hand, will face an increase in its minimum capital requirement, but it has still approved a dividend increase from 51 cents to 53 cents per share.
In response to the stress test results, Morgan Stanley has reauthorized a $20 billion stock buyback plan. JPMorgan and Wells Fargo have also stated that they have the capacity for share repurchases.
Jamie Dimon, CEO of JPMorgan, commented, “The Federal Reserve’s stress test results show that banks are resilient and continue to serve as a pillar of strength to the financial system and broader economy.”
The stress test results will also determine the stress capital buffer for the largest US banks starting in October. This buffer refers to the amount of common equity tier one capital that banks must hold in addition to regulatory minimums relative to their risk-weighted assets. As long as banks meet or exceed the requirements, they can allocate extra capital to dividends or buybacks.
Despite the reduced capital requirements for some banks, there is concern in the industry that the final implementation of new international standards in the US will require banks to hold more capital.
The Federal Reserve and other US banking regulators will soon release proposals for enacting the international standards for calculating risk-weighted assets, known as the Basel III endgame rules. Analysts and bank executives anticipate that these rules will necessitate an increase in the amount of common equity tier one capital held by American banks.
Jamie Dimon stated that JPMorgan remains prepared for various potential outcomes, including potentially higher capital requirements resulting from the finalization of the Basel III capital rules.
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