U.S. bank stocks are mostly rising Tuesday after the largest financial institutions disclosed their dividend, and in some cases stock buyback plans.
The capital return plans were more muted than 2021 as required capital buffers increased for some of the banks, especially the universal banks. For the most part, that was expected before the results were released, analysts said.
Last week, the Federal Reserve announced that all 34 of the banks subject to its 2022 annual stress test passed. From the results released last week, Bank of America (NYSE:BAC), Citigroup (NYSE:C), and JPMorgan Chase (NYSE:JPM) screened poorly, meaning that they’d have less capacity to increase dividend or stock repurchase plans.
As a result of the test, banks received from the central bank a preliminary stress capital buffer (“SCB”) that determines the amount of capital they’re required to set aside to withstand a potential economic shock.
Credit Suisse analyst Susan Roth Katzke summed up the results: “Less return of capital, but still healthy returns on capital.” SCB ratios ranged from lowest allowable level of 2.5% to 6.3% for the large cap banks that Roth Katzke covers.
The average dividend rate increase of ~10% met expectations, she said. The highest dividend increase was at Goldman Sachs (NYSE:GS), with a 25% boost, followed by Wells Fargo (NYSE:WFC), which intends to raise its quarterly dividend by 20%. On the opposite end of the spectrum, Citigroup (C) and JPMorgan Chase (JPM) expect to maintain their current dividend rates.
“Overall, the Universal Banks and Trust Banks are clearly being cautious on the capital return front given an uncertain macro outlook with most announcing modes dividend increases (~5-10%) and few meaningful comments around future share repurchases,” said Evercore ISI analyst Glenn Schorr in a note to clients.
Morgan Stanley (NYSE:MS) was one of the few banks announcing a stock buyback program, in its case a $20B share repurchase authorization. Wells Fargo (WFC) said it has “significant capacity” to repurchase stock, which it will assess routinely.
Among the larger moves in late Tuesday morning trading, Citizens Financial (NYSE:CFG) is rising 1.7%, and Morgan Stanley (MS) is gaining 1.5%. Citigroup (C) is falling 0.6%.
SA contributor Steven Fiorillo said Tuesday that Wells Fargo (WFC) has the potential to become a dividend growth company
Read More: Bank stocks are mostly in the green after investors assess stress tests (NYSE:CFG)