After Bank Stress Tests: Dividend & Buyback Predictions… A Double? (JPM, WFC, BK, STT, BAC, C, GS, MS)March 8, 2012 by Jon C. Ogg
J.P. Morgan Chase & Co. (NYSE: JPM) is likely to be the major winner when it comes to dividend hikes and buybacks as far as the safe banks of the “too big to fail” institutions. JPMorgan might not double its dividend from the current $1.00 now to $2.00 on an annualized basis, but it might be able to if it believes that it can sustain $4.00+ in earnings per share. The bank is likely to do a 50% dividend boost at first and begin buying back stock more selectively.
Wells Fargo & Co. (NYSE: WFC) could take its dividend up to $1.50 per share per year with its earnings estimates above $3.00 per share for each of the next two years and that would be a tripling of the payout today. We do not expect that it will raise the payout that much (from only $0.48 annualized today), but it may use much of its excess liquidity to buy back stock selectively.
Bank of New York Mellon Corporation (NYSE: BK) and State Street Corporation (NYSE: STT) are both also expected to come out fine in the stress tests. These banks could probably double their dividends based upon expected earnings of the trust banks, but we are not as sure that they will formally do that.
Bank of America Corporation (NYSE: BAC) and Citigroup, Inc. (NYSE: C) are both expected to try to increase their dividends and share buybacks. Prince Alwaleed bin Talal has already suggested that he will be demanding that Citi raise its dividend. The question is Bank of America because it was only a few months ago that the run on the bank was feared and that Warren Buffett came to the rescue. If it was just having to raise capital last year, regulators are likely to be less eager to allow Bank of America to start sending money out the backdoor to its shareholders.
Of the bulge bracket investment banks, ergo bank holding companies which have no bank operations, there is the case of Goldman Sachs Group, Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS). Each are expected to be able to raise their dividends, but these banks are still more dependent upon the trends of the financial markets than they are real loan and balance sheet performance of the traditional banks.
Starting on Monday we should be getting more of a focus on the stress tests. This week has been dominated by Greece and a slowing story of China and Brazil. More details and more predictions should start coming front and center on Monday.
JON C. OGG