Big banks raise dividends after Fed affirms their strength

Many of the nation’s largest banks announced plans Monday to increase shareholder payouts following stress tests that validated the strong performance of industry balance sheets during the pandemic.

Nine of the 12 largest banking holding companies — JPMorgan Chase, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, PNC Financial Services Group, Truist Financial and U.S. Bancorp — all proposed raising their quarterly dividends payments. No. 15, State Street, did the same.

With stock prices at high levels, share buyback proposals were less common, though PNC, BNY Mellon, Morgan Stanley and Wells Fargo unveiled plans to repurchase their stock or increase their buybacks.

In announcing the plans to return more capital to shareholders, the banks touted their strength after more than a year of economic dislocation.

“The results of this year’s stress test are a testament to our strong financial profile and well-established financial discipline,” U.S. Bancorp Chairman, President and CEO Andy Cecere said in a press release, “which allowed us to maintain strong capital and liquidity positions throughout the recent adverse economic conditions.”

The banks’ announcements followed the Federal Reserve’s annual publication of bank stress test results last week, which revealed that all 23 of the participants would maintain capital levels well above the central bank’s minimum requirement, even in the most severe economic downturn.

As a result, all of the banks were cleared to resume dividend payments and share repurchases in full for the first time in a year. Thirteen of the banks made announcements about their capital plans on Monday, the first day that they were allowed to do so.

The stress-test results are used to dictate firms’ planned capital distributions for the year. Big banks are required to comply with a so-called stress capital buffer, which is calculated as the difference between the bank’s starting capital ratio and its projected capital ratio under a “severely adverse” scenario, along with planned dividends. The stress capital buffer is set at a minimum of 2.5%.

What follows is a summary of each announcement, with the banks listed in order of their asset size.

JPMorgan Chase

The New York-based megabank said that it was raising its dividend to $1.00 per share from 90 cents as a result of the stress test results and continuing a $30 billion share repurchase program announced last year.

JPMorgan’s stress capital buffer would be lowered to 3.2% from 3.3% starting in the fourth quarter, and its minimum common equity Tier 1 capital requirement was lowered to 11.2% from 11.3%, the bank said.

“The board’s intended dividend increase represents a higher level of sustainable capital distribution to our shareholders, thanks to the combination of strong financial performance and consistent investment in our businesses,” CEO Jamie Dimon said in a press release.

Bank of America

The Charlotte, North Carolina-based company said it would increase its quarterly dividend by 17% to 21 cents a share, pending board approval. BofA had previously announced a $25 billion share repurchase plan in April.

The $2.9 trillion asset company’s stress capital buffer remained unchanged from its current 2.50%. Its minimum common equity Tier 1 ratio was 9.5%, also unchanged.

Its common equity Tier 1 ratio stood at 11.8% on March 31, which translates to about $35 billion in excess capital.

“Our decadelong focus on responsible growth has put us in a strong position to support consumers, businesses and communities while delivering for shareholders,” Chairman and CEO Brian Moynihan said in a press release.

Citigroup

Citi said that it is not changing its dividend payments — but is continuing its share buyback plan announced last year — following stress-test results that were less favorable than at numerous other banks.

The New York bank’s stress capital buffer will actually increase to 3% from the minimum 2.5%. Nearly two-thirds of Citi’s $36.8 billion in projected losses under the stress tests came in its credit card business, according to the company.

Still, Citi said that its current common equity Tier 1 capital ratio of 11.8% was still more than the 10.5% required. The bank’s target of roughly 11.5% “already contemplates periodic volatility in regulatory capital requirements” under the current stress-test framework, CEO Jane Fraser said in a press release.

“Throughout this crisis we have served as a source of strength for our customers, clients and communities and have embraced the opportunity to help lead the economic relief and recovery efforts,” Fraser said.

Wells Fargo

San Francisco-based Wells, which had slashed its dividend last year, said it plans to double its dividend to 20 cents per share, subject to approval from its board. The bank also said that it plans to buy back about $18 billion in shares over a yearlong period beginning in the third quarter.

The announcements came despite an expected increase in Wells Fargo’s stress capital buffer from 2.5% to 3.1%.

“The expected increase in our dividend is a priority, and our plan contemplates it will continue to increase as we grow earnings capacity, subject to future stress-test results,” CEO Charlie Scharf said in a press release.

“We will also regularly evaluate market conditions, remaining pandemic related risks, and other risk factors, which may result in adjustments to the timing or amount of our expected capital actions.”

Goldman Sachs

Goldman raised its dividend to $2 per share, up from $1.25 per share, subject to approval from the company’s board of directors. The company’s stress capital buffer dipped slightly to 6.4%, down from its current required buffer of 6.6%.

David Solomon, Goldman’s chairman and CEO, said in a press release the $1.3 trillion-asset bank is “encouraged by the progress in reducing the capital intensity of our business.”

“The planned increase in our dividend demonstrates our confidence in the increasing durability of our franchise revenues and is consistent with our capital management framework of prioritizing investment in our client franchise and returning excess capital to shareholders,” Solomon said.

The press release did not specify any plans on share buybacks, though Goldman executives have said they plan to continue repurchases of common stock, which totaled $2.7 billion in the first quarter.

Morgan Stanley

Morgan Stanley said that its board of directors has approved a doubling of its quarterly dividend to 70 cents per share. The board also signed off on an increase in its annual share buyback program to $12 billion, up from $10 billion. The $1.2 trillion-asset bank’s stress capital buffer of 5.7% was unchanged from last year.

"The action taken by the board reflects a decision to reset our capital base consistent with the needs we have for our transformed business model," Morgan Stanley Chairman and CEO James Gorman said in a press release, adding that the company’s wealth and investment management arms "provide stable and durable earnings that support a significantly higher payout ratio."

U.S. Bancorp

The Minneapolis-based company said that it would recommend its board of directors increase its quarterly dividend by 9.5% to 46 cents based on the results of this year’s stress test.

The $553 billion-asset company’s stress capital buffer remained unchanged at 2.50%, and U.S. Bancorp is required to maintain a minimum common equity Tier 1 capital ratio above 7%. That ratio was 9.9% as of March 31.

Back in December, U.S. Bancorp announced a $3 billion share repurchase plan, which remains in effect.

PNC

The $560 billion-asset company said that its board will consider a dividend increase to $1.25 per share from $1.15 per share starting in the third quarter. Pittsburgh-based PNC also plans to reinstate a $2.9 billion share repurchase program starting also in the third quarter and lasting over the next year.

PNC’s stress capital buffer will remain at the minimum of 2.5%, the company said in a press release.

Truist

The $518 billion-asset company said it would ask its board to approve a 7% increase in its quarterly dividend to 48 cents after the Fed lowered its stress capital buffer from 2.7% to 2.5%.

Truist, which is the product of a recent merger between BB&T Corp. and SunTrust Banks, also said that it would discuss further capital actions, including potential share buybacks, when it releases its second quarter earnings next month.

"The latest stress-test results, and our actual performance in the prior year, demonstrate Truist is well equipped to weather stressful scenarios," Chairman and CEO Kelly King said in a press release. “With an economy growing stronger every day and our successful merger integration efforts to date, we have an outstanding opportunity to deploy additional capital on behalf of our clients and shareholders.”

BNY Mellon

BNY Mellon said it plans to increase its dividend from 31 cents per share to 34 cents. The bank also announced a $6 billion share repurchase program starting in the third quarter and running through the end of 2022.

BNY’s stress capital buffer will remain at the minimum of 2.5%, the company said.

The flexibility of the Fed’s new stress test framework “allows for more nimble capital management and a potential increase of share repurchases in the coming months contingent on board approval and market conditions,” CEO Todd Gibbons said in a press release.

"We are pleased with the results of this year's stress test, which once again demonstrates the resilience of our business model and the strength of our balance sheet even under severe stress,” Gibbons said.

Capital One

McLean, Virginia-based Capital One said that its new stress capital buffer will be 2.5% starting Oct. 1, substantially below its current required buffer of 5.6%. The $425 billion-asset bank benefited from this year’s stress tests being less harsh on consumer loans, as well as its decline in credit card balances stemming from the pandemic.

The company did not announce any new plans for dividends or share repurchases, which a spokesman noted are typically unveiled during Capital One’s earnings announcements.

State Street

The Boston-based company said that it planned to increase its quarterly dividend by 10% to 57 cents, and that it intends to continue repurchasing shares in future quarters, with plans to discuss share buybacks on its second-quarter earnings call next month. The dividend increase is still subject to board approval.

State Street, which has $3.6 trillion of assets under management, said that its stress capital buffer was well below the 2.5% minimum in this year’s scenario.

Regions Financial

The $153 billion-asset company said that it will operate with a 2.5% stress capital buffer starting in the fourth quarter. Regions was one of four banks, and the only one based in the U.S., to opt in to the Fed’s stress tests this year, apparently in hope of lowering its 2020 stress capital buffer of 3%.

Regions’ board will decide whether to raise the firm’s dividend at a meeting in July.

“Participating in this year’s stress test provided a meaningful opportunity to demonstrate our prudent approach to risk management,” Regions CEO John Turner said in a press release.