Four US banks — Wells Fargo, Bank of America, Goldman Sachs and Morgan Stanley — increased their dividends on Monday after passing the Federal Reserve’s annual stress test last week.
Wells Fargo said it expects to increase its dividend to 30 cents from 25 cents a share. Bank of America increased its dividend by 5% to 22 cents a share. Goldman Sachs said it would increase its dividend 25% to $2.50 per share, and Morgan Stanley said it plans to raise it to 77.5 cents per share and a $20 billion share buyback program.
The Federal Reserve said Thursday the country’s biggest lenders could easily weather a severe economic downturn, clearing the way for them to provide additional capital to shareholders.
The results of the stress exercise gave banks an opportunity to increase dividends, although the Fed’s test was more difficult than last year, pushing up some lenders’ required capital buffers more than expected.
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But some other banks, like JPMorgan & Chase and Citigroup, said their dividends were flat despite increasingly stringent capital requirements.
The annual stress test differs from the one created after the 2007-2009 financial crisis. For the current assessment, the Fed evaluates how bank balance sheets would develop in a hypothetical severe economic downturn. The results show banks how much capital they need to be healthy and how much they can return to shareholders.
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The test determines each bank’s “stressed capital buffer”, an additional capital cushion on top of the regulatory minimum, the size of which is determined by each bank’s hypothetical losses during the exercise.
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Citigroup, JPMorgan and Bank of America said their stressed capital buffers would rise, which analysts had predicted.
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The rise for Bank of America and JPMorgan would be driven by higher loan provisions, while Citi would face higher trading losses, lower fee income and higher expenses, analysts said based on the test results.
Reuters contributed to this report.