Wells Fargo & Co., the largest U.S. home lender, will raise its dividend 20 percent after winning approval from the Federal Reserve for a plan to return more capital to shareholders.
The quarterly dividend will increase to 30 cents a share in the second three-month period from 25 cents, the San Francisco-based lender said today in a statement. The bank also said it plans to repurchase more shares this year than last, without providing a figure. Wells Fargo raised its payout 83 percent last year and bought back about $4 billion of shares.
“Our ability to do this is a testament to our diversified business model, which has allowed us to serve more customers and continue to grow capital,” Chief Executive Officer John Stumpf, 59, said in the statement. The actions provide “shareholders with more return on their investment.”
The central bank told the 18 largest U.S. lenders today whether their capital plans were approved. Last week, the Fed released results of its annual stress tests, saying that 17 of the biggest banks could withstand a deep recession and maintain capital above a regulatory minimum. Wells Fargo’s dividend boost is subject to board approval, the lender said.
Regulators are allowing payouts to climb to pre-crisis levels after U.S. lenders wrapped up the second-most-profitable year on record. Investors in the six largest lenders had anticipated dividend and buyback increases to total $41 billion.
The Fed began annual stress tests in 2009 to evaluate the health of the U.S. banking system. In 2011, the central bank adopted an approach known as Comprehensive Capital Analysis & Review, or CCAR, which focused on lenders’ capital plans, assessing how dividend increases or share buybacks would affect them. Those results were announced today.
Regulators subject bank portfolios, capital levels and profit-making potential to conditions that simulate an economic recession or financial shock. This year’s stress tests involved three scenarios, including two stressed situations. In one, the economy contracts for six quarters and inflation and interest rates rise sharply. In the other, unemployment climbs above 12 percent and stocks fall 52 percent.