The big boys of the US, Morgan Stanley (MS, $78.17), Goldman Sachs (GS, $299.67), Bank of America (BAC, $32.26) and Wells Fargo (WFC, $40.19) hiked their dividends on Monday after the U.S. banks cleared their annual stress test exercise last week. On Thursday, the U.S. Federal Reserve stated that the country's largest lenders could easily weather a severe economic downturn, giving them a carte blanche to redistribute excess capital to shareholders.
The results allowed banks to announce higher dividends despite the Fed's test being tougher than in 2021, pushing up some lenders' required capital buffers more than expected. However, JPMorgan & Chase and Citigroup kept their payout flat, as a challenging economic environment may require more capital. Citi will likely give an update on its capital plans at its upcoming earnings on July 15, a source familiar with the situation said.
Morgan Stanley shares rose over 3% after the company increased its dividend and announced a $20 billion stock buyback. Goldman had one of the largest dividend increases, with a 25% hike to $2.50 per share. Bank of America’s increase came to 5%, while Morgan Stanley raised its dividend by 20%.
Why it matters
The initial stress tests were established following the 2007-2009 financial crisis, the Fed assesses how banks' balance sheets would fare against a hypothetical severe economic downturn. The results dictate how much capital banks need to be healthy and how much they can return to shareholders. Considering the current global state of play, with a supposed recession looming, it's good news for shareholders and banks alike that they can withstand the impact of a further downturn.
