Business Excellence Awards
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By Michael J. Moore and Dakin Campbell
NEW YORK - Bank of America Corp., Wells Fargo & Co. and American Express Co. boosted payouts to investors after passing U.S. tests of their financial health as banks push to regain luster lost since the 2008 credit crisis.
JPMorgan Chase & Co., Citigroup Inc. and Capital One Financial Corp. also were among lenders that said they’ll boost quarterly dividends or expand stock buybacks minutes after the Federal Reserve approved capital plans yesterday for 16 of the 18 largest U.S. banks. The buybacks total more than $20 billion while the dividend increases amount to more than $3.5 billion on an annual basis, data compiled by Bloomberg show.
Lenders are still struggling to restore their stock prices and dividends to pre-crisis levels, even as the Dow Jones Industrial Average eclipses record highs. The KBW Bank Index of 24 U.S. lenders is about 50 percent below its value in March 2007, while the Dow benchmark has returned about 40 percent including dividends.
“Wells Fargo was clearly a winner and U.S. Bancorp had a nice increase,” said Matt McCormick, who helps oversee $7.7 billion as a money manager at Cincinnati-based Bahl & Gaynor Investment Counsel Inc. “When you look at the banks, I like seeing dividend increases. That’s a much better indicator of health than the buybacks.”
Capital plans are proposals by banks to disburse dividends and repurchase shares, payouts that were curtailed during the financial crisis.
Ally Financial Inc., the auto lender majority-owned by U.S. taxpayers, and Winston-Salem, N.C.-based BB&T Corp. had their capital plans rejected by the Fed. BB&T’s sparked an objection based on a “qualitative assessment,” and the firm must resubmit a proposal after addressing unspecified issues the Fed identified.
While JPMorgan and Goldman Sachs Group Inc. received approval for their capital plans, the New York-based firms must submit new capital plans by the end of the third quarter to address weaknesses in their planning processes. The deficiencies found at the two banks related to projections of losses and revenue, according to a Fed official.
Regulators intent on preventing a repeat of the 2008 financial crisis have run annual stress tests on the biggest banks to see how they might weather an economic shock. The Fed last week disclosed how the 18 largest lenders performed in a hypothetical recession in which U.S. unemployment peaks at 12.1 percent, home prices fall 21 percent and stocks plunge 52 percent. Goldman Sachs fell 1.7 percent after those results through yesterday, the second-worst performance among firms reviewed. JPMorgan rose 0.7 percent.
Yesterday’s test required the firms to submit plans for managing their capital. The central bank then gauged how strong each bank would be with the funds that remained.
For the first time, companies were allowed to revise those plans and immediately resubmit a new proposal for approval. The option came after Citigroup and SunTrust Banks Inc. had their capital plans rejected last year.
JPMorgan, the biggest U.S. bank by assets, raised its quarterly dividend to 38 cents from 30 cents and said it intends to repurchase $6 billion of its stock within 12 months. Bank of America, the second-largest lender, left its payout unchanged while saying it may buy back as much as $5 billion of its shares and redeem $5.5 billion of preferred securities.