JPMorgan Chase, Wells Fargo, and other large players may soon follow Comerica's lead in boosting their quarterly payouts
A regional bank's decision to double its dividend may be a signal that U.S. regulators will allow more of the nation's biggest lenders to lift their payouts. Comerica (CMA), the Dallas-based bank that posted annual profits throughout the financial crisis, boosted its quarterly dividend to 10 cents a share on Nov. 16. Banks including JPMorgan Chase (JPM), Wells Fargo (WFC), U.S. Bancorp (USB), and PNC Financial Services (PNC) may be next, says Jennifer Thompson, an analyst at New York-based Portales Partners. "You will see a number of the stronger banks increase their dividends in the first quarter," Thompson says.
The six largest U.S. banks by assets—Bank of America (BAC), JPMorgan Chase, Citigroup (C), Wells Fargo, Goldman Sachs (GS), and Morgan Stanley (MS)—paid quarterly dividends totaling $2.49 a share in 2007. That's down to 51 cents a share, with Goldman's 35 cents payout representing the majority. Concern that bank capital was under pressure from souring loans prompted Federal Reserve officials in February 2009 to issue a letter saying financial firms "should reduce or eliminate dividends" when earnings decline or the economic outlook deteriorates. Barbara Hagenbaugh of the Fed and Andrew Gray, a spokesman for the Federal Deposit Insurance Corp., declined to comment.
Investors and analysts have used quarterly conference calls to press banking executives about dividend increases, and bank managers have chafed against limits set by regulators. Wells Fargo Chief Financial Officer Howard I. Atkins said last month that an increase is a "top priority" for the bank. JPMorgan Chase Chief Executive Officer Jamie Dimon said on Oct. 13 that he was "reasonably hopeful" the firm will be able to raise its payment in 2011's first quarter and that regulators were open to the idea.
On Nov. 17 the Fed issued guidelines on how it will decide whether large banks may increase dividends and buy back shares. Among the requirements is that banks must repay or replace any government investment with preferred or common stock. Banks must also show they can absorb losses if the economy sours. "The Fed has clearly made a decision that the industry, by and large, is able to or needs to issue dividends," says William Sweet, a former Fed attorney and a partner at Skadden, Arps, Slate, Meagher & Flom in Washington.
Richard X. Bove, an analyst at Rochdale Securities in Lutz, Fla., believes banks are making enough money to raise payouts. Earnings have topped estimates at 19 of the 24 banks in the KBW (BKX) Bank Index that have reported since Oct. 7, according to data compiled by Bloomberg. This year the bank-stock index has gained 5.4 percent through Nov. 19, while the Standard & Poor's 500-stock index has gained 7.6 percent.
JPMorgan Chase and Wells Fargo are among the banks most likely to increase their dividends as early as the first quarter of 2011, Bove says. According to Bloomberg dividend forecasts, JPMorgan will quadruple its quarterly payout, to 20 cents a share, in February, while Wells Fargo's will double, to 10 cents, in April.
The bottom line: As the financial crisis eases and earnings improve, regulators may allow banks to start increasing their dividends.