Financial stocks rallied today after a person familiar with the matter told Bloomberg News that the Federal Reserve is preparing guidelines for supervisors to use in assessing whether banks are strong enough to boost payouts or buy back shares. Banks in the Standard & Poor’s 500 Index climbed 3.7 percent yesterday, leading the gauge to a two-year high.
“It now looks highly likely that the dividends for a number of banks will be increased,” Bove, who is based in Lutz, Florida, said in a telephone interview. “Do they have the capacity to dramatically increase their dividends? The answer is definitely yes. They have enormous capacity to increase their earnings from a balance sheet standpoint.”
Earnings have topped estimates at 19 of the 24 banks in the KBW Bank Index that have reported since Oct. 7, according to data compiled by Bloomberg.
JPMorgan and Wells Fargo, the largest U.S. home lender, which last month reported third-quarter earnings that beat analysts’ estimates, are among the most likely to boost their payouts, according to Bove.
Wells Fargo Chief Financial Officer Howard Atkins, 59, said last month that an increase is a “top priority” for the bank. JPMorgan Chase Chief Executive Officer Jamie Dimon, 54, said 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.
Bove said other banks that may boost their dividends are Bank of New York Mellon Corp., Northern Trust Corp., State Street Corp., BB&T Corp., Comerica Inc., U.S. Bancorp and PNC Financial Services Group Inc.
The analyst doesn’t expect the following banks to boost their payouts: Citigroup Inc., First Horizon National Corp., Fifth Third Bancorp, KeyCorp, Marshall & Ilsley Corp., Regions Financial Corp., SunTrust Banks Inc. and Zions Bancorporation. He said it is unclear what Bank of America Corp. will do.
The U.S. Treasury Department forced Charlotte, North Carolina-based Bank of America and Citigroup of New York to slash their quarterly payments to no more than a penny as a condition of receiving an additional $20 billion of bailout money in late 2008 and early 2009. The banks had gotten $25 billion a few months earlier.
The S&P 500 Banks Index fell 28 percent from this year’s high on May 3 through Aug. 30 on concern that widening European deficits and U.S. financial regulation would curb lending. Since then, the index has risen 20 percent. The gauge rallied 3.7 percent at 1:14 p.m. in New York.
The results of Bove’s past predictions have been mixed. He recommended selling Lehman Brothers Holdings Inc. stock four months before the securities firm collapsed, helping investors avoid a 65 percent plunge in the shares. Bove raised it to “buy” on Aug. 21, 2008. Lehman filed the world’s largest bankruptcy three weeks later.
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