More caution from Citigroup
Not all US institutions have actually chosen to go out of their way. Some brands have preferred to adopt greater caution, starting with Citigroup: it has kept its coupon unchanged at 51 cents. Newly named CEO Jane Fraser said she is not committed to any specific dividend increases.
Crisis behind
A first balance sheet of the announcements arrived by the banks, over a dozen, however, shows how they have turned the page from the crisis: according to some estimates in a few hours they could have decided to donate a new “treasure” of at least two billion to be shared in the coupons for the next quarter . And in all, the major American banks, Wells Fargo senior analyst Mike Mayo predicted, could already mobilize up to 127 billion this year compared to 63 billion in 2020.
Other analysts have focused on the payout in the next four quarters, calculated at 130 billion from the 66 of the previous period. Only the top six banks will spend an average of 122% of profits on buybacks and dividends over the next twelve months.
Stress test passed
At the root of the new generosity is the success of the 23 institutions examined by the Fed in passing the latest stress tests, the results of which came to light last week. Even in the face of the most serious crisis scenarios, with hikes in unemployment and collapses on Wall Street, they would hold up the blow: collective losses would reach 474 billion. But in a sign of the health now conquered by the sector, they would preserve significantly higher capital requirements – double – compared to the minimum required. More than enough for the Central Bank, as promised, to lift dividend limits or buyback bans.
During the pandemic, the Fed intervened to limit the flexibility of high finance in making payments to shareholders and thus ensure the soundness of the institutions, mindful of the shocks of the great crisis of 2008. The institutions have also been subjected to repeated rounds of stress test in the last year. It is a phase that now appears to have been overcome: first in the balance sheet results, where the banks have demobilized reserves against losses that have not materialized (thanks to the huge public support for the entire economy). Then in the analysis of the Fed, which had eased some restrictions as early as January. And now in the dividend choices in the post-stress test.
Rising prices
The optimism, in the wake of the “rewards” to shareholders and the financial strength demonstrated, was also leaked by the upward pressure in the prices of more than one leader in the banking sector. Morgan Stanley gained nearly 4% after chief executive James Gorman pointed out that the group has “accumulated significant excess capital in recent years.” Shares of JP Morgan and Goldman Sachs also rose.