Wall Street Funnels Cash to Investors on Stress-Test Success

Wall Street and Broad Street signs in New York, U.S. (Photographer: Nina Westervelt/Bloomberg)

Wall Street Funnels Cash to Investors on Stress-Test Success

Morgan Stanley led big U.S. banks in raising payouts to investors -- by jacking up dividends or announcing plans to buy back shares -- after amassing cash piles that easily met the Federal Reserve’s capital requirements.

Dividend payouts by the nation’s six largest lenders will rise, on average, by almost half -- and that’s with Citigroup Inc. abstaining from an increase -- according to statements issued Monday. Morgan Stanley doubled its quarterly payout while also announcing as much as $12 billion in stock buybacks.

Wall Street Funnels Cash to Investors on Stress-Test Success

“Morgan Stanley has accumulated significant excess capital over the past several years and now has one of the largest capital buffers in the industry,” Chief Executive Officer James Gorman said in the bank’s statement.

Shares of Morgan Stanley climbed 2.9% at 9:51 a.m. in New York trading.

The firms began announcing their plans for distributing capital after getting the green light from the Fed to resume dividend and buyback increases. All lenders passed the central bank’s stress tests last week, which freed them from remaining pandemic-era restrictions on payouts.

The stress tests used to trigger anxiety across Wall Street, but the banks’ solid showing underscores how comfortable the industry has grown with the exercises. This year, with firms sitting on a massive stockpile of excess cash, the exams were primarily an indicator of how much of that money can be doled out to shareholders.

Wells Fargo & Co., the troubled San Francisco-based lender, announced an $18 billion buyback program and doubled its dividend to 20 cents. Investors may be less than enthralled with the payout, however, which stood at 51 cents about a year ago when the scandal-plagued firm cut it to 10 cents. Shares of the company declined 0.8% in New York.

Goldman Sachs Group Inc. said it was boosting its quarterly payout 60% to $2 a share, effective Oct. 1, according to a statement. And JPMorgan Chase & Co. is raising its dividend to $1 from 90 cents, and said it continues to be authorized to repurchase shares under a previous plan. Goldman shares advanced 1%.

“The Federal Reserve’s hypothetical CCAR stress test once again showed that banks continue to have strong capital levels and could withstand an extreme outcome while continuing to support the broader economy,” JPMorgan CEO Jamie Dimon said in a statement.

Bank of America Corp. will increase its dividend 17% to 21 cents, subject to board approval, according to a statement from the Charlotte, North Carolina-based bank. Shares of the company were down 0.6% in New York.

Wall Street Funnels Cash to Investors on Stress-Test Success

Citigroup Inc. was an outlier among the big banks, holding its dividend steady at 51 cents a share -- where it’s been for almost two years. The bank will also be “continuing with our planned capital actions” regarding share repurchases, CEO Jane Fraser said in a statement. Citigroup fell 1.6% in New York.

Congressional Critics

A surge in payouts is welcome news for investors but could put big banks on the defensive again in Washington. Critics including U.S. Senator Elizabeth Warren of Massachusetts have condemned buybacks and dividends for enriching executives, and have called for lenders to use excess capital to do more for employees.

While Monday marked the first day that the Fed said firms could release their capital plans, companies may choose to disclose their intentions, or provide additional details, at a later date. Firms don’t need the Fed to sign off on their capital plans, as long as each lender stays above its established capital minimum. If a bank falls below its required stress capital buffer at any point in the year following the stress tests, the Fed can hit it with sanctions, including restrictions on capital distributions and bonus payments.

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