The Federal Reserve on Friday cleared the way for some major banks to boost stock dividends, prompting announcements from JPMorgan Chase, Wells Fargo and U.S. Bancorp.
JPMorgan (NYSE:JPM - News) said it will increase its dividend to 25 cents a share from 5 cents, Wells Fargo (NYSE:WFC - News) hiked its dividend to 12 cents a share from 5 cents, and U.S. Bancorp (NYSE:USB - News) also boosted its dividend.
JPMorgan authorized a $15 billion stock buyback, with up to $8 billion in 2011. U.S. Bancorp OK'd a 50-million-share buyback plan.
Most of the 19 biggest U.S. banks hiked dividends, set buybacks or announced plans to do so.
Financials rallied, though gains faded somewhat along with the broader market. JPMorgan rose 2.5%. The SPDR Financial ETF (ARCA:XLF) climbed 1%.
Banks can increase dividends if they pass "stress tests" showing they can weather another recession.
The Fed said it had completed those tests and expects "some firms" to increase or resume dividend payments, buy back shares or repay government capital. The Fed isn't revealing either the names or number of banks that are expected to do so.
All of the 19 largest banks overseen by the Fed were subject to the examinations. They included Citigroup (NYSE:C - News), Bank of America (NYSE:BAC - News), JPMorgan and Wells Fargo.
During the financial crisis, banks slashed dividends to build capital cushions to absorb losses. Regulators barred banks from boosting dividends without obtaining approval.
By increasing payments, banks may be able to attract new investors, a situation that should lead to more lending to people and businesses, the Fed said.
The central bank is taking a "measured and conservative approach" on banks' dividend requests. It expects banks to limit dividends to 30% or less of their anticipated earnings.
Big Banks In Better Shape
A green light from the Fed on bigger dividend payments would also signal that banks are in better financial shape.
Federal regulators have been working closely with banks to strengthen operations and get lending flowing more normally again after the worst crisis since the 1930s.
The Fed said Friday that the 19 banks had increased common equity by more than $300 billion from the end of 2008 to the end of 2010. Overall, both the banks' amount and mix of capital have improved since the financial crisis, the Fed concluded in a paper released Friday.
Under the stress tests, banks had to show that they could survive a scenario in which U.S. GDP falls 1.5% this year and unemployment spikes to 11%. In addition, stocks and home prices would tumble.
Across the Atlantic, European regulators pledged to make their banks' stress tests this year more difficult than last year's.
The Fed kept the results of this latest round of stress tests confidential, which is standard practice in bank exams. But after its first stress tests in 2009, the central bank released the results to the public to boost confidence in the fragile U.S. banking system.
At the time, the government had launched a taxpayer-funded bailout of banks. The fear was that by withholding information on banks' health, investors' and the American public's shaky confidence would be further hurt.
JPMorgan (NYSE:JPM - News) said it will increase its dividend to 25 cents a share from 5 cents, Wells Fargo (NYSE:WFC - News) hiked its dividend to 12 cents a share from 5 cents, and U.S. Bancorp (NYSE:USB - News) also boosted its dividend.
JPMorgan authorized a $15 billion stock buyback, with up to $8 billion in 2011. U.S. Bancorp OK'd a 50-million-share buyback plan.
Most of the 19 biggest U.S. banks hiked dividends, set buybacks or announced plans to do so.
Financials rallied, though gains faded somewhat along with the broader market. JPMorgan rose 2.5%. The SPDR Financial ETF (ARCA:XLF) climbed 1%.
Banks can increase dividends if they pass "stress tests" showing they can weather another recession.
The Fed said it had completed those tests and expects "some firms" to increase or resume dividend payments, buy back shares or repay government capital. The Fed isn't revealing either the names or number of banks that are expected to do so.
All of the 19 largest banks overseen by the Fed were subject to the examinations. They included Citigroup (NYSE:C - News), Bank of America (NYSE:BAC - News), JPMorgan and Wells Fargo.
During the financial crisis, banks slashed dividends to build capital cushions to absorb losses. Regulators barred banks from boosting dividends without obtaining approval.
By increasing payments, banks may be able to attract new investors, a situation that should lead to more lending to people and businesses, the Fed said.
The central bank is taking a "measured and conservative approach" on banks' dividend requests. It expects banks to limit dividends to 30% or less of their anticipated earnings.
Big Banks In Better Shape
A green light from the Fed on bigger dividend payments would also signal that banks are in better financial shape.
Federal regulators have been working closely with banks to strengthen operations and get lending flowing more normally again after the worst crisis since the 1930s.
The Fed said Friday that the 19 banks had increased common equity by more than $300 billion from the end of 2008 to the end of 2010. Overall, both the banks' amount and mix of capital have improved since the financial crisis, the Fed concluded in a paper released Friday.
Under the stress tests, banks had to show that they could survive a scenario in which U.S. GDP falls 1.5% this year and unemployment spikes to 11%. In addition, stocks and home prices would tumble.
Across the Atlantic, European regulators pledged to make their banks' stress tests this year more difficult than last year's.
The Fed kept the results of this latest round of stress tests confidential, which is standard practice in bank exams. But after its first stress tests in 2009, the central bank released the results to the public to boost confidence in the fragile U.S. banking system.
At the time, the government had launched a taxpayer-funded bailout of banks. The fear was that by withholding information on banks' health, investors' and the American public's shaky confidence would be further hurt.
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