Biggest US banks raise dividends after passing stress test

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JPMorgan Chase, Goldman Sachs, Morgan Stanley and Wells Fargo are among large US banks planning higher payouts to shareholders after government-mandated stress tests this week indicated they may be subject to lighter capital requirements. Will be

The stress test results, and a potential shareholder windfall, are a sigh of relief for US banks as regulators finalize potentially tighter capital standards.

The Federal Reserve released the results of its annual stress tests on Wednesday, showing that the 23 largest US banks would lose $541 billion in a hypothetical catastrophic economic scenario, but they still have enough capital to absorb the losses. Is.

The banks used the results to brief investors on their dividend plans late Friday. Many banks that had their minimum capital requirements lowered were able to free up resources for higher shareholder payouts.

JPMorgan said it would increase its quarterly dividend from $1 to $1.05 per share, Morgan Stanley would raise its dividend from 78 cents to 85 cents, and Wells Fargo would raise its dividend from 30 cents to 35 cents. Goldman said it planned to increase its dividend from $2.50 to $2.75 per share.

Unlike the others, as a result of this year’s stress test, Citigroup’s minimum capital requirement will increase to 12.3 percent of risk-weighted assets from 12 percent last year.

Nonetheless, Citi said its board has approved a dividend increase from 51 cents to 53 cents per share.

Citi Chief Executive Jane Fraser said, “While we obviously would not like to see our stress capital buffer increase, these results still demonstrate Citi’s financial resilience through all economic environments, including Federal Reserve stress.” The test also includes a severe adverse scenario.” , said in a statement.

Morgan Stanley said it is reauthorizing a $20 billion stock buyback plan. JPMorgan and Wells Fargo both said they have the ability to repurchase shares.

“The results of the Federal Reserve’s 2023 stress test show that banks are resilient – ​​even in the face of severe shocks – and remain a pillar of strength for the financial system and the broader economy,” JPMorgan Chief Executive Jamie Dimon said in a statement. continue to work.”

Morgan Stanley chief executive James Gorman said the dividend decision reflected the bank’s “strong capital position”.

The results of the tests are used to determine the so-called stress capital buffer for the largest US banks starting in October. This is the amount of Common Equity Tier One capital that they must hold relative to their risk-weighted assets over and above the regulatory minimum.

Banks are free to dedicate capital in excess of the minimum limit for dividends or buybacks as long as the requirements are matched or exceeded.

Despite lighter capital requirements for some banks, there is concern in the industry that eventual US implementation of the new international standards will eventually mean that banks will again have to hold more capital.

The Fed and other US banking regulators will publish proposals for how to apply international standards for calculating risk-weighted assets, known as the Basel III endgame rules. Analysts and bank executives anticipate that these rules will mean that US banks will have to hold more common equity Tier One capital.

Dimon said JPMorgan is “prepared for a wide range of possible outcomes, including potentially higher future capital requirements” from the finalization of Basel III capital rules.