Banks rush to boost shareholder payouts after stress test results

Many of the largest banks are set to boost shareholder dividends and stock repurchases after receiving passing grades in the Federal Reserve’s stress tests this week.

Several banks are set to boost both dividends and buybacks by double digits. Bank of America announced one of the most aggressive capital-return programs, as it will increase its repurchase plan 50% to $31 billion and its dividend 20% to 18 cents per share.

“We have generated record earnings and consistent returns that allow us to invest in our company [and] deliver solid returns to shareholders,” Chairman and CEO Brian Moynihan said in a Thursday news release. The announced plan “will prudently return a portion of our excess capital above what is needed for investments to grow the company.”

As regulatory requirements have eased following the financial crisis, banks have been able to reduce their huge stockpiles of capital through returns to shareholders. From January to May this year, publicly traded banking companies were on pace to nearly double the number of buyback plans introduced or renewed.

Almost all of the largest banks already had repurchase and dividend plans in place, but this week’s results from the yearly Comprehensive Capital Analysis and Review test will allow many of those banks to expand them. A group of 11 of the largest U.S. banks, including Bank of America and JPMorgan Chase, will expand their average payout ratio, a measurement of both dividends and repurchases, to about 115%, Marty Mosby, an analyst at Vining Sparks, wrote in a Friday research note.

JPMorgan Chase will expand its repurchase plan by 42% and increase its dividend by 13%, though it was forced to resubmit its capital plan to the Fed this year, after several capital rations in its initial plan fell below minimum requirements.

“We are pleased to have the capacity and flexibility to return excess capital to our shareholders as we maintain a fortress balance sheet that provides the ability to withstand extreme stress,” Chairman and CEO Jamie Dimon said in a news release.

Many large banks will reduce the size of repurchase plans this year. Wells Fargo will lower its plan 6% to $23.1 billion, while Regions Financial will reduce its plan 32% to $1.4 billion. The banks did not provide explanations in their news releases for the decreases.

The $128 billion-asset Regions was not among the banks stress-tested. Banks with between $100 billion and $250 billion of assets were exempted from this year’s round of supervisory stress tests, though they will be required to undertake the tests in 2020.

Most regional banks are expected to announce stock-buyback and dividend plans next month, around the time they issue second-quarter results, Mosby said.