After U.S. banks passed the Fed’s latest stress tests with flying colors, bank dividends are soaring. Some of our highly favored banks just increased their dividends as much as 35% in addition to announcing increased buybacks. The FT reports on bank dividends.
Now, rather than accumulating capital to build buffers against losses, the likes of Morgan Stanley and Bank of America can start handing it back. Across the 34 banks which took this year’s exam, payouts to shareholders will come close to 100 per cent of projected profits over the next year, according to senior Fed officials, up from about 65 per cent for the class of 2016.
At JPMorgan Chase, for example, where CEO Jamie Dimon has been boasting for years of his “fortress” balance sheet, the payout ratio will be $27bn, or 110 per cent of profits over the next 12 months. That is 24 percentage points higher than the market’s expectations, according to Jefferies.
The splurge marks an inflection point. Over the past seven years the Fed has been urging the banks to build capital and to improve the way they track risks. Even if they passed, banks were often issued with long lists of “matters requiring attention” — or more seriously, “matters requiring immediate attention”.
Now, the Fed is saying that much of that work is over. Some banks like JPMorgan, the biggest in the country by assets, will be returning more capital than they are generating, while many of the rest will be radically lifting payouts from previous levels.
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