On Friday, major U.S. banks revealed plans to increase their third-quarter dividends after demonstrating sufficient capital to endure severe economic and market challenges, as confirmed by the Federal Reserve’s annual stress test.
JPMorgan Chase, the largest U.S. lender, raised its dividend from $1.15 to $1.25 per share, according to a filing. Additionally, its board authorized $30 billion in new share buybacks, effective July 1.
Bank of America announced its dividend will rise from 24 cents to 26 cents per share, while Citigroup stated its dividend will increase from 53 cents to 56 cents per share.
These updates were provided in separate regulatory filings.
“Banks are going to remain conservative on capital as uncertainty over the Basel proposal remains,” commented Brian Mulberry, a client portfolio manager at Zacks Investment Management, following the announcements.
Banks have expressed concerns that higher capital requirements proposed under draft rules, known as the Basel endgame, could hinder their lending capabilities and negatively impact the economy.
Morgan Stanley also announced an increase in its dividend from 85 cents to 92.5 cents per share, as per a filing.
These announcements followed the banks’ successful clearance of the Fed’s stress test earlier in the week, which determines the amount of capital banks must set aside before returning money to shareholders.
Goldman Sachs reported an increase in its dividend from $2.75 to $3 per share.
The performance on the stress tests affects the size of a bank’s stress capital buffer (SCB), an additional capital cushion required by the Fed to weather a hypothetical economic downturn. Goldman Sachs plans to discuss its SCB increase with its regulator.
“This increase does not seem to reflect the strategic evolution of our business and the continuous progress we’ve made to reduce our stress loss intensity,” stated CEO David Solomon.
Wells Fargo announced its dividend will rise to 40 cents per share.
This year, the Fed tested 31 major banks, compared to 23 last year.
The stress tests indicated that banks would maintain sufficient capital to continue lending in various scenarios, including a significant spike in unemployment, severe market volatility, and declines in residential and commercial mortgage markets.