Comerica Inc.’s decision to double its dividend may signal that U.S. regulators will allow more of the biggest lenders to begin restoring their payouts.
Comerica, the Dallas-based bank that posted annual profits throughout the financial crisis, boosted its quarterly dividend to 10 cents a share yesterday. Comerica also authorized the repurchase of as much as 7 percent of stock outstanding, according to a company statement. Banks including JPMorgan Chase & Co., Wells Fargo & Co., U.S. Bancorp and PNC Financial Service Group Inc. may be next, said Jennifer Thompson, an analyst at New York-based Portales Partners LLC.
“You will see a number of the stronger banks increase their dividends over the next quarter,” Thompson said yesterday in a phone interview. She assigns a “hold” rating on Comerica, the 15th-biggest U.S. commercial lender by assets. “The regulators have put rules in place and now it will be a matter of making individual decisions for each bank.”
Investors and analysts have used quarterly conference calls to press banking executives about the timing of dividend increases and bank managers have chafed against limits set by regulators. Federal Reserve Governor Daniel Tarullo said last week that banks seeking to raise payouts must undergo stress tests to show they have sufficient capital for two years.
JPMorgan CEO Jamie Dimon said Oct. 13 that he hopes to raise the dividend in the first quarter of 2011. The lender had repurchased $2.6 billion of its own shares this year through September. Wells Fargo finance chief Howard Atkins said last month that an increase in the payout is a “top priority” for the bank.
Concerns that bank capital was under pressure from souring loans prompted Fed officials in February 2009 to issue a letter saying financial firms “should reduce or eliminate dividends” when earnings decline or the economic outlook deteriorates. The six largest U.S. banks currently pay quarterly dividends totaling 51 cents a share, down from $2.49 in 2007. Barbara Hagenbaugh of the Fed and Andrew Gray, a spokesman for the Federal Deposit Insurance Corp., declined to comment.
Comerica’s dividend is payable Jan. 1 to shareholders of record on Dec. 15, and the buyback plan may include almost 12.6 million shares. The bank also may repurchase warrants covering about 11.5 million shares. Comerica climbed $1.01, or 2.8 percent, to $37.75 at 9:31 a.m. in New York Stock Exchange composite trading. The shares advanced 24 percent this year through yesterday.
Comerica has made little residential-mortgage lending compared with many rivals, Thompson said. In March, Comerica repaid $2.25 billion to the Troubled Asset Relief Program and in October it redeemed $500 million of trust-preferred securities, which will be discontinued as a form of regulatory capital starting in 2013.
“Historically they have operated with a very conservative capital structure,” said Jeff Davis, an analyst at Guggenheim Securities LLC in Nashville, Tennessee. “They have more flexibility to do things early in cycles like this.”
Larger banks like JPMorgan and Wells Fargo may have to wait for clarity on Basel III capital rules and costs of mortgage buybacks before boosting dividends, Davis said. The Basel Committee on Banking Supervision said last week that it will identify which firms will be subject to stricter rules by the middle of next year and how much of an additional cushion they’ll need by the end of 2011.
Comerica “is a bank that has run with a lot of equity capital and that’s where Basel III is steering the banking sector,” Davis said. The bigger banks may “have to wait to see how the capital ratios play out because in a lot of ways JPMorgan is the ‘bank of America’ and while Wells Fargo is highly profitable I think they will be subject to the Basel III rules as well.”