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Morgan Stanley, JPMorgan Chase, Bank of America, Goldman Sachs and Wells Fargo said on Monday that they are increasing capital expenditures after the Fed gave them a clean and healthy bill after conducting an annual “stress test” last week.
Analysts and investors had expected that the country’s largest bank would issue as much as $130 billion in dividends starting next month after the Fed ended its restrictions on how much capital can be returned to investors during an emergency during the pandemic last week. And stock repurchase.
However, Morgan Stanley’s biggest surprise to investors is that it said it will double its dividend to 70 cents per share in the third quarter of 2021. Some analysts had expected it to increase to about 50 cents.
The Wall Street giant also said that it will increase spending on stock repurchases. After the announcement, its stock price rose 3.7% in after-hours trading.
Morgan Stanley CEO James Gorman said in the announcement that the bank can return so much capital due to the excess funds accumulated over the years. He said that this action “reflects the decision to reset our capital base to meet our needs for the transformed business model.”
Bank of America said that starting from the third quarter of 2021, it will increase its dividend by 17% to 21 cents per share. JPMorgan Chase said that the dividend in the third quarter will be raised from 90 cents per share to $1.
Goldman Sachs Group said it plans to raise the dividend for common stock from US$1.25 to US$2 per share.
Wells Fargo is accumulating capital faster than its competitors, partly because the Fed has set an upper limit on its balance sheet, and the company said it plans to repurchase $18 billion in stocks in the four quarters starting in September.
The repurchase target is close to 10% of its stock market value, which is in line with analyst expectations.
Wells Fargo, which has been trying to get rid of a series of costly improper sales scandals for years, said its quarterly dividend will double to 20 cents per share, in line with analyst expectations.
CEO Charlie Schaff said in a statement: “Since the beginning of the COVID-19 pandemic, we have built our financial strength… and continue to solve our legacy problems.” “We will continue to do so, Because we return a lot of capital to our shareholders,” Schalf added.
Stress tests have caused anxiety across Wall Street in the past, but the bank’s robust performance highlights the industry’s satisfaction with the growth of these exercises. This year, because banks have a large amount of excess cash, the examination is mainly an indicator of how much money can be distributed to shareholders.
An outlier
At the same time, Citigroup confirmed analysts’ estimates that, based on the results of the stress test, a key part of its required capital ratio has increased from 2.5% to 3%.
A report by JPMorgan Chase analyst Vivek Juneja shows that this increase in scale will limit Citigroup’s share repurchases compared to peers. Juneja predicts that Citigroup’s return on capital will be the lowest among the major banks he covers.
Citigroup CEO Jane Fraser said the bank will continue its “planned capital actions, including a common dividend of at least $0.51 per share” and repurchase shares in the market.
Bank of America shares were flat in after-hours trading, Goldman Sachs shares rose 0.6%, while Citigroup and JPMorgan Chase fell 0.9% and 0.3%, respectively.
The Fed said on Thursday that it will end the remaining restrictions on dividends after discovering that the country’s largest bank will still maintain sufficient capital in its latest stress test.
The central bank said that the test found that under a hypothetical severe recession, the 23 largest companies would suffer a total of $474 billion in losses, but would still have more than twice the capital required by the Federal Reserve.
The surge in spending is good news for investors, but it may put Washington’s big banks on the defensive again. Critics, including Senator Elizabeth Warren of Massachusetts, condemned buybacks and dividends to make executives rich, and called on lenders to use excess capital to do more for their employees.
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