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US banking giants Bank of America, Citigroup, Morgan Stanley and JPMorgan Chase told shareholders on Friday they planned to increase their dividend payouts and teased billions of dollars of future stock buybacks after they passed annual “stress tests” from the Federal Reserve.

The Fed earlier this week confirmed that all 31 of the banks tested, which ranged from the largest lenders like JPMorgan and BofA to mid-size banks like Citizens and PNC as well as US subsidiaries of foreign firms like UBS and Deutsche Bank, successfully weathered its stress test. 

The test gauges the largest US banks’ ability to survive a severe economic downturn and is used to set updated minimum capital requirements, which are in place to absorb potential losses. 

Many of the banks on Friday said their stress test results confirmed what they expected to hear from the Fed, and that they would be able to return some of the excess capital they were holding to shareholders as a result.  

Citi exceeded expectations in this year’s stress test. The bank was the only one among its peers — BofA, Goldman, JPMorgan, Morgan Stanley and Wells Fargo — to show smaller losses in this year’s stress test than last year.

Citi was also the only one of the big banks to see its capital ratio requirement for the next year shrink, to 12.1 per cent, from 12.3 per cent a year ago.

Nonetheless, Citi only increased its quarterly dividend payout by 6 per cent, to $0.56 a share, likely reflecting the continued challenges facing the bank, which is in the middle of a multiyear restructuring effort. 

JPMorgan said it planned to increase its dividend for the third quarter by almost 9 per cent to $1.25 per share while its board authorised a new $30bn stock buyback programme. This was even as JPMorgan, the largest US bank, saw its capital ratio requirement increase to 12.3 per cent from 11.9 per cent.   

Bar chart of CET1 ratio in per cent showing Most large US banks see capital requirements increase after latest Fed stress tests

Goldman Sachs saw the amount of capital it is required to hold relative to its assets go up, which chief executive David Solomon said “does not seem to reflect the strategic evolution of our business and the continuous progress we’ve made to reduce our stress loss intensity”. Goldman nevertheless increased its dividend by 9 per cent. 

“We will engage with our regulator to better understand their determinations,” Solomon said. 

Morgan Stanley lifted its dividend by almost 9 per cent and authorised a buyback programme worth $20bn. 

Wells Fargo announced it was increasing its dividend by 14 per cent to 40 cents per share for the third quarter. The bank said it had the “capacity to repurchase common stock” during the next year, but didn’t give any more details.

BofA raised its dividend by 8 per cent to 26 cents per share for the third quarter.

The amount of capital large US banks are required to hold has emerged as a major political debate in the past 12 months. The regulators’ proposal last year for banks to hold a greater amount of capital under new international capital standards provoked an aggressive lobbying effort by the industry.



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