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AmEx Initial Capital Plan Nixed by Fed, Passed on 2nd Try

American Express Co. (AXP), the biggest U.S. credit-card issuer by purchases, said the Federal Reserve approved a revised plan to increase its dividend by 15 percent and repurchase shares.

The lender plans to increase the quarterly payout to 23 cents from 20 cents a share and buy back as much as $3.2 billion of stock in the final nine months of this year and $1 billion in the first quarter of 2014, New York-based American Express said today in a statement. The firm also said it’s repurchasing about $800 million of shares in the current quarter.

AmEx’s revised plan was approved after the Fed rejected the lender’s initial proposal following stress tests to gauge how the biggest U.S. banks would fare in a recession or severe economic shock. The lender initially asked for as much as $4.7 billion in share repurchases in the last nine months of this year and $1 billion in the first quarter of 2014, according to the statement.

Regulators have run annual stress tests on the largest U.S. banks to help prevent a repeat of the 2008 financial crisis. American Express’s initial payout plan would have reduced its Tier 1 common ratio in a downturn to 4.97 percent, below the Fed’s 5 percent minimum threshold. The revised plan boosted the measure of financial strength to 6.42 percent, according to central bank data released today in Washington.

Balance Sheet

“We have a very strong balance sheet and currently generate capital in excess of what we need to support our business growth,” Chief Executive Officer Kenneth I. Chenault said during a presentation last month. AmEx typically plans to return 50 percent of the capital it generates to shareholders, said Chenault, 61.

After passing last year’s stress test, the lender increased its quarterly dividend by 11 percent to 20 cents a share and said it may repurchase as much as $5 billion of its stock. American Express was among three banks out of 18 tested to have their initial capital plans rejected and the only one to have its resubmission approved, today’s data show.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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