Goldman raises dividend as JPMorgan and Citi stay loyal

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Diving Brief:

  • Goldman Sachs announced on Monday that it increase its dividend to $2.50 per share $2 – the biggest jump among the country’s six largest banks after the Federal Reserve released the results of its annual stress test last week.
  • JPMorgan Chase and Townmeanwhile, maintained their dividends at $1 per share and 51 cents per share, respectively.
  • Dividends recorded an average increase of 13.6% at the six largest U.S. banks, far less than the average jump of 40.4% between 2020 and 2021.

Overview of the dive:

JPMorgan, for its part, is keeping its dividend stable “in light of higher future capital requirements,” the bank said. Monday in a folder. The Fed’s requirement for Common Equity Tier 1 (CET1) capital to risk-weighted assets ratios will drop to 12% from October, from 11.2% now, it said. she indicated in the file.

The Fed’s stress test “shows once again that banks are capable of being a source of strength for the broader economy while withstanding extreme market shocks,” the JPMorgan CEO said. Jamie. Dimon said in a statement.

“We continue to maintain a fortress balance sheet featuring strong governance and controls, strong revenue growth and profit margins,” he said. “We will continue to use our capital to invest and grow our market-leading business, pay a sustainable dividend, and we will retain capital to fully meet our future regulatory requirements.”

JPMorgan this year announced a $30 billion share buyback plan that began May 1. A company spokesperson told CNBC the bank “continues to have board approval for buyouts.”

The country’s largest bank is not the only one to be very cautious. Citi, for example, hasn’t changed its $0.51 per share dividend since 2019.

“We are committed to executing the strategy we presented at Investor Day, improving our returns and providing excess capital to our investors,” Citi CEO Jane Fraser said Monday, according to American banker.

This bank will also see its CET1 requirement increase – to 11.5% from 10.5% – from October. Bank of America, meanwhile, will drop from 9.5% to 10.5%.

Despite this, the Charlotte, North Carolina-based lender announced on Monday that it increase its dividend to $0.22 per share from $0.21.

“Our responsible growth strategy over the past decade has placed us in a strong position to support our customers and serve our shareholders,” CEO Brian Moynihan said in a statement.

Morgan Stanley and Wells Fargo also announced dividend increases. The former increased its shareholder yield to $0.775 per share, from $0.70, and announced plans to repurchase up to $20 billion worth of shares.

Wells Fargo, meanwhile, is adjusting its dividend to $0.30 per share from $0.25.

“We are well positioned to support our customers and our communities, while continuing to return excess capital to shareholders through dividends and stock buybacks,” said Wells Fargo CEO Charlie Scharf. said monday.

In 2020, the bank cut its payout to shareholders to $0.10 per share, but doubled it after last year’s stress test and increased it again mid-cycle.

Morgan Stanley’s increase on Monday did nothing compared to last year, when it doubled its dividend. But compared to the other big banks in the country, Morgan Stanley seems to have the most leeway. The bank’s new CET1 ratio will be 13.3% from October, up from 14.5% at the end of March, according to the FinancialTimes.

Goldman’s 25% dividend increase is well below the 60% by which it boosted shareholder returns last year. Although it is still the biggest rise by a bank in the top six this year.

“Our customer-focused strategy will continue to diversify the business franchise and provide an enhanced return profile,” CEO David Solomon said in a statement. “We will continue to manage capital aggressively and remain well positioned to support our customers.”

The hike comes even though Goldman will be hit with an additional 50 basis point surcharge on its CET1 capital requirements from next year due to its status as a systemically important bank.

Stress test backfire

Dividend increases were not limited to the six largest US banks. State Street increased its dividend by 10% on Monday to $0.63 per share, according to Bloomberg. BNY Mellon increased its dividend by 9% to $0.37. And Truist increased its quarterly shareholder return by 8% to $0.52 per share, the news service reported.

Results were released Thursday for the Fed’s stress test on 33 banks with the largest operations in the United States. In the extremely adverse scenario of the test – which sees unemployment rise to 10%, commercial property prices fall by 40%, property prices fall by 28.5% and stock prices fall by 55% — the banks’ overall common equity capital ratio should fall to 9.7%. That would still be more than double the 4.5% minimum required by the Fed – a prospect that has drawn the attention of liberal-leaning lawmakers that the test may be too easy or take the wrong criteria into account. reference.

“Wall Street bank CEOs have sounded the alarm about an economic hurricane, but the reality is that the biggest banks are not doing what they need to do to protect the economy from the storm. next crisis,” said Sen. Sherrod Brown, D.-OH, said Thursday after the release of the stress test results. “Instead of building capital to withstand losses or investing in the real economy and workers, they plan to spend $80 billion on stock buybacks and dividends.”

Phillip Basil, director of banking policy at Better Markets, said that while this year’s stress test scenarios were more severe than last year, the test measured familiar variables and mirrored or amplified past market shocks. rather than anticipating new problems.

“While this is a more stressful scenario, at least on paper, it’s a very simple scenario that banks are well placed to handle,” he said. American banker.

Randal Quarles, the former Fed vice chairman for oversight, told the publication that Basil’s characterization of the scenarios as “vanilla” might be warranted. Quarles said he favors including a broader range of test criteria that would require results to be averaged over several years when setting capital requirements. But the fluctuations it would cause in some banks’ capital requirements would make such a test ineffective, he said.

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