NEW YORK: US banking giants have announced plans to raise their third-quarter dividends after proving that they have enough capital to withstand severe economic and market turmoil in the Federal Reserve’s (Fed) annual health check.
JPMorgan Chase, the largest US lender, hiked its dividend to US$1.25 a share from US$1.15, according to a filing.
Its board also authorised US$30bil in new share buybacks, effective July 1.
Bank of America’s dividend will rise to 26 US cents a share from 24 US cents, and Citigroup’s will increase to 56 US cents from 53 US cents, the lenders said in separate regulatory filings. “Banks are going to remain conservative on capital as uncertainty over the Basel proposal remains,” Brian Mulberry, a client portfolio manager at Zacks Investment Management, said after the dividends were announced.
Banks have argued that higher capital requirements proposed under draft rules known as the Basel endgame could impede their ability to lend and could be detrimental for the economy.
Morgan Stanley boosted its dividend to 92.5 US cents a share from 85 US cents, according to a filing.
The announcements came after the banks cleared the Fed’s stress test earlier last week, which determines how much capital they need to set aside before they can return money to shareholders. Goldman Sachs’ dividend will climb to US$3 per share, compared with US$2.75 earlier.
How well a bank performs on the stress tests dictates the size of its stress capital buffer – an extra cushion of capital the Fed requires banks to hold to weather a hypothetical economic downturn.
Wells Fargo’s dividend will rise to 40 US cents.
This year, 31 big banks were tested, compared with 23 last year.
The checks showed banks would have enough capital to continue lending in several scenarios, including a major spike in unemployment, severe market volatility, and plunges in residential and commercial mortgage markets. — Reuters
