Dividends and shares
The US banking sector and Wall Street as a whole received a positive signal after stress tests conducted by the Fed for 23 major US banks showed better capitalisation results than required by the central bank. Bank stocks are rising as analysts forecast a number of dividend hikes.
The central bank determined that under hypothetical conditions: with the unemployment rate at 10.75% and GDP falling by 4%, the 23 largest US banks would lose a total of $474bn. About $160bn of those losses would come from commercial real estate and corporate loans.
Stress tests showed that in such a hypothetical crisis environment, these banks would still be left with more than twice the capital required by Fed rules.
As a result, the Fed lifted the dividend and share repurchase limits for these banks, a practice it employed during the 2020 pandemic and in early 2021 in the face of potential credit default risks.
Thus, sufficient liquidity and preparedness for recession risks for the largest US banks, with Fed approval, gives them the opportunity to channel free funds to shareholders through dividend increases and buybacks of their own shares.
According to Barclays analysts' estimates, the six largest US banks: JPMorgan Chase Co (JPM) and Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), Morgan Stanley (MS) and Goldman Sachs (GS) will triple the volume of share buybacks and pay shareholders in the coming months to $107bn.
Wells Fargo shares, up 53.7% YTD, rose 2.7% to $46.38 on Friday. Goldman Sachs is forecast to raise its dividend from $1.25 to $2, with a new annual yield of 2.2%, according to Barclays. Goldman Sachs shares, up 39.8% YTD, rose $0.02 on Friday to $368.77. Morgan Stanley's quarterly dividend could rise from $0.3 to $0.55, with a yield of 2.5%. Morgan Stanley shares rose 29% YTD and 1.5% on Friday to $88.40. JPMorgan Chase, the largest bank in the U.S. by capitalization, could raise its dividend from $0.90 to $1 per share, yielding an annualized yield of 2.6% at a share price of $154.
JPMorgan Chase shares are up 21.2% YTD and 1% on Friday.
Bank of America's dividend could rise from $0.18 to $0.22 and the annual yield to 2.1%.
Citigroup's dividend could rise from $0.51 to $0.56 with a yield of 2.2%.