JPMorgan, Wells Fargo, and Morgan Stanley to increase dividends following successful clearance of the Fed stress test

On Friday, major US banks, including JPMorgan Chase, Wells Fargo, and Morgan Stanley, announced their intention to increase their quarterly dividends following successful clearance of the Federal Reserve’s annual stress test.

In a statement, JPMorgan announced its plans to increase its payout from $1 per share to $1.05 per share, starting in the third quarter, pending board approval.

JPMorgan CEO Jamie Dimon stated in the release, “The 2023 stress test results from the Federal Reserve demonstrate the resilience of banks, even in the face of severe shocks, and their continued role as a cornerstone of strength for the financial system and broader economy. The Board’s proposed dividend increase reflects a sustainable and slightly elevated level of capital distribution to our shareholders.”

In the recent annual exercise, the Federal Reserve disclosed on Wednesday that all 23 participating banks successfully passed the regulatory threshold. The test determines the amount of capital banks are permitted to allocate to shareholders through buybacks and dividends. This year’s examination subjected the banks to a scenario of a “severe global recession,” involving a 10% spike in unemployment, a 40% decline in commercial real estate values, and a 38% decrease in housing prices.

Following their successful clearance of the stress test, Wells Fargo announced its intention to raise its dividend from 30 cents per share to 35 cents per share, while Morgan Stanley revealed plans to increase its payout from 77.5 cents per share to 85 cents per share.

Goldman Sachs made the most significant per share increase among major banks, raising its dividend from $2.50 per share to $2.75 per share.

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In contrast, Citigroup, the smallest among its peers, announced a modest increase in its quarterly payout, raising it from 51 cents per share to 53 cents per share.

The reason behind Citigroup’s relatively smaller dividend increase compared to JPMorgan and Goldman Sachs is likely due to the fact that, following the stress test, Citigroup was among the banks that experienced an increase in their capital buffers, while JPMorgan and Goldman Sachs delivered better-than-expected results that allowed for smaller capital buffers.

Citigroup CEO Jane Fraser acknowledged in the company’s release, “Although we would have preferred to avoid an increase in our stress capital buffer, these results underscore Citi’s financial resilience across various economic conditions.”

None of the major banks disclosed specific details regarding plans to increase share repurchases. JPMorgan and Morgan Stanley mentioned the possibility of utilizing previously-announced repurchase plans, while Wells Fargo stated its capability to repurchase common stock in the coming year.

Analysts have noted that banks are expected to exercise more caution with their capital-return strategies this year. This approach stems from the anticipation that the finalization of international banking regulations will increase the capital requirements for major global institutions like JPMorgan.

Banks have additional incentives to retain capital. In response to the Silicon Valley Bank collapse in March, regional banks may face heightened regulatory standards. Furthermore, the possibility of an upcoming recession could amplify loan losses for the industry, prompting a need to bolster capital reserves.

Source : cnbc.com

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