JPMorgan Chase & Co. and Wells Fargo & Co. joined U.S. banks raising dividends and authorizing share repurchases after passing the Federal Reserve’s test of how lenders would fare in an economic decline.
JPMorgan, the largest U.S. bank, will increase its quarterly dividend 20 percent to 30 cents a share, the New York-based company said today in a statement. The bank also authorized a $15 billion stock-repurchase program, with $12 billion approved for 2012. Wells Fargo & Co., the most valuable U.S. lender, increased its quarterly dividend by 83 percent to 22 cents a share, according to a statement.
The Fed is requiring the nation’s largest banks to show they have credible plans for maintaining capital and continuing lending in an economic downturn. The central bank said 15 of the 19 largest U.S. banks could maintain adequate capital levels even in a recession scenario in which they continue to pay dividends and buy back stock.
“The fact that 15 passed a robust test shows the relative financial health of the system,” said Michael Holland, chairman and founder of New York-based Holland & Co., which oversees more than $4 billion including JPMorgan shares. “There has been so much cash built up it almost screams to have some of it shared with investors.”
The four firms that fell short by at least one measure under the Fed’s stressed scenario were Citigroup Inc., MetLife Inc., Ally Financial Inc., and SunTrust Banks Inc. Citigroup and Ally plan to resubmit their capital plans this year, according to statements from the lenders.
JPMorgan’s $15 billion in share repurchases would be enough to buy back about 346 million shares at today’s closing price. That represents about 9 percent of shares outstanding. JPMorgan rose 7 percent, the most since November, to $43.39 in New York. The bank was the biggest gainer on the 24-company KBW Bank Index, which rose 4.6 percent.
“We expect to generate significant capital and deploy that capital to the benefit of our shareholders,” JPMorgan Chairman and Chief Executive Officer Jamie Dimon said in the statement.
Wells Fargo, based in San Francisco, won approval to increase its share repurchases this year and to redeem certain trust-preferred securities, according to its statement. The bank didn’t say how many shares it would repurchase.
Wells Fargo rose 5.8 percent today, while Citigroup gained 6.3 percent.
After almost three years of economic expansion, U.S. banks have raised profits, rebuilt capital, and increased liquidity after the collapse of Lehman Brothers Holdings Inc. in 2008 threatened the financial system.
The Fed said an unemployment rate of 13 percent, a 50 percent drop in stock prices and a 21 percent decline in house prices under the stress scenario would produce aggregate losses of $534 billion over nine quarters.
Even with that blow, the 19 banks would see their Tier 1 common capital ratio -- a measure of bank strength against loss -- fall to 6.3 percent in the fourth quarter of 2013 in the hypothetical scenario, above the 5 percent minimum the Fed required. The ratio was 10.1 percent in the third quarter of last year.
“It is night and day,” Jason Goldberg, senior analyst at Barclays Capital Inc. in New York, said before the announcement. “In 2009, about half the banks failed the stress test. The industry’s capital position is higher today, and better quality. There is a lot less leverage.”
Goldman Sachs Group Inc., the fifth-biggest U.S. bank by assets, said regulators didn’t object to its plan to repurchase common stock and potentially raise the dividend. The bank’s statement didn’t give further details.
Morgan Stanley said regulators didn’t object to its capital plan, including the potential purchase of an additional piece of the Smith Barney retail brokerage joint venture with Citigroup. Morgan Stanley has the option to buy a 14 percent stake in May, increasing its ownership to 65 percent, and can buy the business outright over the next two years.
Regional banks announced plans to boost payouts. U.S. Bancorp, Minnesota’s largest bank, increased its quarterly dividend 56 percent to 19.5 cents a share and may buy back as much as 100 million shares, it said in a statement. BB&T Corp., based in Winston-Salem, North Carolina, raised its quarterly dividend 25 percent to 20 cents a share, according to a statement today.
KeyCorp, the Cleveland-based lender, announced a $344 million share buyback and said it may raise its quarterly dividend to 5 cents from 3 cents. PNC Financial Services Group Inc., based in Pittsburgh, said regulators had no objection to a plan to raise its dividend. The board may consider an increase at a meeting next month, PNC said.
American Express Co., the biggest credit-card issuer by customer spending, plans to boost its quarterly dividend 11 percent to 20 cents a share, and may repurchase as much as $5 billion of its stock within the next year, according to a filing. The lender said it may buy back $4 billion of shares this year and $1 billion in the first quarter of 2013.
Regions Financial Corp., the Birmingham, Alabama-based lender, plans to sell $900 million of its common stock to help repay $3.5 billion of federal bailout funds. Regions said the action was included in its capital plan submitted as part of the stress tests, according to a statement.
The Fed also subjected the six largest banks to a potential global financial market shock. JPMorgan led the banks with an estimated $27.7 billion in projected losses from mark-to-market changes, credit valuation adjustments and counterparty default losses, according to the Fed’ scenario. The six banks had a projected $116 billion in trading and counterparty losses, larger than the 19 banks subjected to Fed’s stress tests had in any lending area.