NEW YORK • The US Federal Reserve told big banks they have more than enough capital, and they promptly announced a windfall for their shareholders.
JPMorgan Chase, Citigroup and Bank of America led US firms in unveiling plans to boost dividends and stock buybacks, more than analysts had projected, after every lender passed annual stress tests for the first time since the Fed began the reviews in the wake of the 2008 financial crisis.
Capital One Financial was the lone bank to stumble through the exam on Wednesday, garnering conditional approval to make payouts while it fixes "material weaknesses" in planning.
Lofty payouts once made banks hot stocks before the financial crisis exposed many of them as too thinly capitalised. The companies' plans unveiled on Wednesday show how they are trying to generate investor interest - even as many still struggle to meet profitability targets and a few languish below book value.
"This is the big payoff after seven years of pushing the industry to get to a place where capital planning is well ingrained," said Mr David Wright, managing director at Deloitte's advisory business.
The Fed's projections also show regulators may have more leeway to ease rules after years of forcing companies to curtail risk taking and beef up internal controls - demands that eroded revenue and fuelled costs.
REAPING THE REWARDS
This is the big payoff after seven years of pushing the industry to get to a place where capital planning is well ingrained.
MR DAVID WRIGHT, managing director at Deloitte's advisory business.
The industry is counting on President Donald Trump to soften that oversight by appointing more business-friendly board members to the Fed, shifting the balance of power from regulators to shareholders. Earlier this month, Treasury Secretary Steven Mnuchin recommended that stress tests be performed every other year and banks maintaining a sufficiently high level of capital be exempt from exams.
"The highly positive report card puts more wind at the backs of the Trump administration and others who want to soften Dodd- Frank- era regulations," Mr Ian Katz, analyst at Capital Alpha Partners, said in a note on Wednesday, referring to a 2010 rewrite of industry rules.
JPMorgan said it is boosting its quarterly dividend 12 per cent and may increase share repurchases to US$19.4 billion (S$26.8 billion) over the next 12 months - roughly 90 per cent more than in the prior year.
Citigroup plans to double its dividend and may purchase up to US$15.6 billion. Bank of America hiked its dividend 60 per cent and will buy back up to US$12 billion.
Shares of all three rose more than 1.5 per cent in extended trading in New York on Wednesday. They, along with Wells Fargo and Morgan Stanley, may collectively buy as much as US$64 billion in stock. Goldman Sachs Group has yet to make an announcement.
Generally, banks are expected to distribute close to 100 per cent of their earnings over the next four quarters, substantially more than a year earlier, according to a senior Fed official. On average, analysts had estimated that the 34 firms in this year's tests would pay out about 86 per cent.