The Federal Reserve has released its Comprehensive Capital Annual Review (CCAR) results and the news is overwhelmingly good for investors and operations inside of the major banks. While the stress tests showed that most major banks passed, this will clear the way for increased dividends and higher buybacks for most of them.
Not all passed, and some did not exactly pass with flying colors. The Fed said that 28 of the 31 were approved for more investor payouts under their CCAR. As a reminder, 24/7 Wall St. predicted that there was a great shot that four of the dividend hikes announced would be coming from major banks. Another consideration is that four of the big six banks had to refile their capital plans with the Federal Reserve before betting final approval for their capital plans.
24/7 Wall St. has highlighted the major developments on each, as well as shown a reaction ahead of and after the news.
Bank of America Corp. (NYSE: BAC) has some very mixed news here, but the reaction is negative because of severe limitations. The bank’s capital plan was approved, but it was told that it needs to change its capital planning process and submit a plan in the fall. Bank of America’s minimum leverage ratio under severe stress would be 5%, and its minimum Tier One common capital level under severe stress would be 6.8%. BofA was told to keep its $0.05 dividend static but it was approved to buy back up to $4 billion worth of common stock. BofA shares closed up 2% at $16.11 ahead of the news, and the stock was down 0.8% at $15.98 in the after-hours session after the news.
Citigroup Inc. (NYSE: C) has been given Federal Reserve approval for its capital plan. In short, Citi finally will be able to increase its dividend after failing to win approval in 2014. Citi will increase its common stock dividend up to $0.05 per share from 1-cent, and it authorized a common stock repurchase program of up to $7.8 billion during the five quarters starting in the second quarter of 2015. CEO Michael Corbat will likely find redemption here, as will other top executives. The Fed indicated that Citigroup’s minimum leverage ratio under severe stress would be 4.4%, and its minimum Tier One Common Capital ratio under severe stress would be 7.1%. Citi shares were up 2.1% at $52.33 in regular trading ahead of the news, and the stock was up almost 3% at $53.84 after the news in the evening trading session.
Goldman Sachs Group Inc. (NYSE: GS) had to adjust its capital plans, but the bank was given permission to raise its dividend to $0.65 from $0.60 per quarter. It will also be given continued permission to repurchase common stock but the bank did not specify any increases or any amounts under any timeframe. Goldman Sachs was trading up 0.9% at $185.82 in the after-hours, after closing up 0.8% on the regular trading day.
JPMorgan Chase & Co. (NYSE: JPM) was given Fed approval, with adjustments. The fortress balance sheet owner in increasing its dividend to $0.44 per share from $0.40, and the banking giant will also repurchase of up to $6.4 billion of common equity between April 1, 2015, and June 30, 2016. Its Tier 1 common ratio was put at 5.5%, after the adjusted filing, and it would have been 5.0%, under the severe tests. Team Dimon’s stock closed up 0.5% at $60.24 ahead of the news and shares were up only marginally with a 5-cent gain to $60.29 in the after-hours session. It seems obvious here that Jamie Dimon will be very disappointed if you looked at his most recent dividend and buyback outlook.
Wells Fargo & Co. (NYSE: WFC) announced that the Fed Board had not objected to its proposed 2015 Capital Plan. In this plan Wells Fargo proposed a dividend rate of $0.375 per share beginning in the second quarter of 2015, effectively a 7% increase over the current rate. The CEO, John Stumpf, released in a statement that the bank will continue with its strong share repurchase activity.
Morgan Stanley (NYSE: MS) announced that it received no objection from the Fed for its 2015 Capital Plan. In effect it passed the stress test. The 2015 Capital Plan includes a share repurchase plan for up to $3.1 billion of common stock for the five quarters beginning in the second quarter of 2015. The bank will also increase its quarterly dividend to $0.15 per share from its current level of $0.10; this will be effective at the same time of the repurchase plan.
American Express Co. (NYSE: AXP) was not notified of any objection to its 2015 capital plan by the Federal Reserve. According to the plan, the company will increase its quarterly dividend to $0.29 per share beginning in the second quarter of 2015, granted this is still subject to approval by the board of directors. However American Express will repurchase $6.6 billion shares of common stock beginning in the second quarter of 2015 through the second quarter of 2016.
Discovery Financial Services (NYSE: DFS) received no objections from the Federal Reserve on its capital plan. This plan includes an increase in the quarterly dividend to $0.28 from $0.24. The company will also pursue a share repurchase program of up to $2.2 billion during the five quarters that end June 30, 2016.
U.S. Bancorp‘s (NYSE: USB) capital plan for 2015 was not objected to by the Fed. As a result, the bank plans to follow through and increase its dividend rate beginning in the second quarter. At that time dividends are expected to be increased to $0.255 per share, up 4.1% from the current rate, if the board of directors approves. U.S. Bancorp has authorized the repurchase of up to $3.022 billion of its outstanding stock through the end of June 2016, replacing the current plan ending in March.
Units of Deutsche Bank and Banco Santander were rejected for qualitative shortcomings over their CCAR. These were said to have had widespread and substantial weaknesses.