By Steve Gelsi
Six of the U.S.’s largest banks said they have enough capital to either maintain or hike their dividends to shareholders after setting enough aside to handle the most extreme economic conditions expected in the coming year.
Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC +2.31% and Goldman Sachs Group Inc. /zigman2/quotes/209237603/composite GS +0.84% both increased their payouts by 20%, while Morgan Stanley /zigman2/quotes/209104354/composite MS +0.90% moved it up by 11%.
Bank of America Corp. /zigman2/quotes/200894270/composite BAC +1.68% increased its dividend by 5%, while Citigroup Inc. /zigman2/quotes/207741460/composite C +0.78% and JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM +3.03% held their dividend flat.
The U.S. Federal Reserve cleared the banks to disclose dividend payments on Monday after the stock market closed, once they wrapped up their annual stress tests, which set up capital requirements for banks to withstand a hypothetical recession in the coming 12 months.
In the face of the worst inflation in decades and jitters in financial markets about a looming recession, the Fed boosted the amount of capital it wanted banks to keep on their balance sheets so they could continue to lend in the event of a severe economic downturn.
This year, the Fed said banks could withstand 10% unemployment and a 55% stock price drop , after requiring lenders to increase their common equity Tier 1 (CET1) capital levels and their stress capital buffers.
Wells Fargo and Goldman Sachs “went big” on their dividend increase, with Bank of America “up modestly,” said Ken Usdin, analyst a Jefferies.
Along with dividends, banks also return capital to shareholders through stock buybacks.
Morgan Stanley said it approved a $20 billion stock buyback program, and JPMorgan Chase stuck to plans in April to launch a $30 billion buyback program.
Citigroup has an existing open-ended stock buyback authorization and Goldman Sachs has 33 million shares remaining in a stock buyback program dating back to 2000, according to Usdin. Wells Fargo is working with a 500 million share buyback authorization from its board. Bank of America had $17 billion in buybacks in its program as of March 31.
Shares of the big banks have been weakened this year by recession jitters. Goldman Sachs Group has lost 21% since Jan. 1; Wells Fargo is down 16%, Citigroup has declined by 20.8%, Morgan Stanley is off by 21.1%, Bank of America is down 27.3% and JPMorgan Chase has fallen by 26.5%.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.23% has fallen 13.5% by Monday’s close; the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.16% has subtracted 18.2% and the Financial Select SPDR ETF /zigman2/quotes/209660484/composite XLF +0.72% is off by 17.5%.