Jamie Dimon, CEO of JP Morgan Chase, during an interview with Jim Cramer, February 23, 2023.
The major American banks including JPMorgan Chase, Wells Fargo And Morgan Stanley said on Friday they planned to increase their quarterly dividends after compensating the Federal Reserve annual stress test.
JPMorgan plans to increase its payout to $1.05 per share from $1 per share starting in the third quarter, subject to board approval, the New York-based bank said in a statement.
“The Federal Reserve’s 2023 stress test results show that banks are resilient – even when withstanding severe shocks – and continue to serve as a pillar of strength for the financial system and the broader economy,” JPMorgan CEO Jamie Dimon said in the statement. “The increase in the dividend planned by the board of directors represents a sustainable and slightly higher level of distribution of capital to our shareholders.”
On Wednesday, the Fed released results of its annual exercise and said that the 23 banks that participated cleared the regulatory hurdle. The test dictates the amount of capital banks can return to shareholders via buyouts and dividends. In this year’s review, banks suffered a “severe global recession” with unemployment hitting 10%, a 40% fall in commercial property values and a 38% drop in house prices.
After passing the test, Wells Fargo said it would increase its dividend to 35 cents per share from 30 cents per share, and Morgan Stanley said it would increase its payout to 85 cents per share from 77. 5 cents per share.
Goldman Sachs announced the biggest increase per share among major banks, raising its dividend to $2.75 per share from $2.50 per share.
Meanwhile, Citigroup said it would raise its quarterly payout to 53 cents per share from 51 cents per share, the lowest increase among its peers.
That’s likely because JPMorgan and Goldman surprised analysts this week with better-than-expected results that allowed for smaller capital reserves, Citigroup was among the banks that saw their reserves rise after the stress test.
“While we would clearly have preferred not to see an increase in our stress capital cushion, these results still demonstrate Citi’s financial resilience in all economic environments,” said Citigroup CEO. Jane Fraser said in his company’s statement.
All major banks have refrained from announcing specific plans to boost share buybacks. For example, JPMorgan and Morgan Stanley each said they could repurchase shares using previously announced repurchase plans; Wells Fargo said it has the “ability to repurchase common stock” over the next year.
Analysts said banks are likely to be more conservative with their capital return plans this year. Indeed, the finalization of international banking regulations should increase the levels of capital that the largest global companies like JPMorgan are expected to maintain.
There are other reasons why banks hold on to capital: regional banks may also be required to meet higher standards as part of regulators’ response to the Silicon Valley Bank collapse in March, and a potential recession could increase the industry’s future loan losses.