All major US banks underwent stress tests last Wednesday, this is the first time since their launch seven years ago in which all creditors pass the Federal Reserve tests.
JPMorgan Chase, Citigroup and Bank of America were among the first banks unveiled plans to increase dividends and stock buybacks, and then a larger amount than analysts’ expectations, says Bloomberg. Shares of industry recorded a significant growth in stock trading late Wednesday.
Shares of Capital One, however, fell more than 2 percent after it proved to be the only bank with a slight obstacle on the road. Fed wants it to submit a new capital plan to correct “weaknesses in capital planning.” Capital One will still be able to pay dividends and to arrange for the repurchase of shares.
Too large payments previously made banks particularly attractive, but the financial crisis has shown that many of them are too poorly capitalized. The plans of the companies presented on Wednesday show that they are trying to generate investor interest, although many of them still have difficulties with the implementation of its targets for profit.
Fed forecasts show that regulators may have more space for easing the rules after years of forced companies to limit risk-taking and strengthen internal controls – demands which hit revenues and increased costs.
The industry now relies President Donald Trump weaken this control, choosing more favorable to business members of the Fed, shifting the balance of power of regulators to shareholders. Earlier this month, Finance Minister Steven Manuchin recommended stress tests to be applied each year, and banks maintaining a sufficient level of capital to be excluded from the tests.
JPMorgan, the largest lender in the country, said it would raise its dividend for the quarter by 12% and can increase redemptions of shares to 19.4 bln dollars over the next 12 months – about 90% from the previous year. Citigroup plans to double its dividend and buy back shares for up to 15.6 bln dollars. Bank of America raised its dividend by 60 percent and plans to buy back up to 12 bln dollars.
Shares of the three banks rose more than 1.5 percent in extended trading in New York. They, along with Wells Fargo and Morgan Stanley, may buy back shares for a total of 64 bln dollars. Goldman Sachs currently has not announced his plans.
Generally banks are expected to distribute nearly 100% of its profits over the next four quarters, which is significantly more than last year, according to a senior Fed. Average analyst estimates suggest that 34 companies in this year’s stress tests will pay about 86% of their profits, according to data compiled by Bloomberg.
Difficulties of Capital One turned out to be a surprise. Some analysts believe that Wells Fargo cannot pass the test after scandal retail banking, which showed serious deficiencies in control. Morgan Stanley, which last year had again to present his plan for capital management, proved least one of the indicators in the first round of tests last week.
Companies focused on credit cards, met most difficulties. The Fed said last week that “the recent slight increase in the level of arrears in the portfolio of credit cards” was among stress points for banks. Capital One and American Express were the only companies this year that have had to adjust their capital plans after the first round.
Headquartered in New York, a division of Deutsche Bank and American business of the Spanish Banco Santander, which over the past two years failed to meet quality standards, this year also successfully passed the tests.
