Fed approves dividend, buyback plans of all 34 biggest banks

Banks bolster Wall Street after Fed boost

The Federal Reserve Board on Wednesday announced it has completed its review of the capital planning practices of the nation's largest banks and did not object to the capital plans of all 34 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR).

Shares in JP Morgan, the biggest U.S. lender, rose by 2 per cent in after-hours trading after the bank announced a share repurchase programme worth as much as $19.4 billion.

The Fed approved Wednesday the capital return plans of all 34 banks , the first time the whole industry passed in the seven-year history of the tests.

The stress test showed that numerous banks involved have not only built up adequate capital buffers but also improved risk management, the Fed said late on Wednesday. Financial shares jumped in extended trading. Bank of America Corp was up 1.2 percent while JPMorgan added 0.9 percent, and Goldman Sachs Group Inc rose 0.54 percent.

Today's results assess whether a bank is able to maintain a certain level of capital under severe stress, while also accounting for the firm's plans to distribute capital to shareholders.

Only Capital One gets dinged so to speak, and even so, the credit-card focused lender received conditional approval if it resubmits its plan.

The Journal said that dividend payouts and share buybacks will reach their highest levels since the Great Recession based on USA bank plans.

Neil Wilson at ETX Capital said: "Banks are also profiting from a shift in central bank language that suggests the decade-long pursuit of easy money policies could be ending".

The banks have a total of about $1.2 trillion in capital reserves as of the fourth quarter of past year, an increase of $750 billion over the beginning of 2009, in the depths of the crisis, the Federal Reserve said.

Morgan Stanley's proposed plan involves lifting its quarterly dividend by a nickel to 25 cents a share and buying back US$5bn of shares by the end of June 2018, up from US$3.5bn in the previous year.

The Fed can reject a bank's capital plan for either reason. In the last earnings report the EPS was $0.86 and is expected to be $1.33 for the current year with 1,096,107,000 shares presently outstanding.

US Banks on Wall Street have been given the go-ahead from regulators after passing stress tests.

Bank of America boosted its dividend by 60 percent to US$0.12 per share, and said it planned up to US$12 billion in share buybacks over the next year, plus another US$900 million to offset shares awarded under executive compensation plans.

Powell, the Fed's interim regulatory czar, told Senate lawmakers last week if the country's largest banks continue to meet regulators expectations, it would be "appropriate" to remove the subjective aspect of the yearly test altogether.

Wells Fargo also plans to spend up to $11.8 billion on share repurchases over the next four quarters.

The Fed governor's suggestion comes amid more than 100 recommendations made by the Treasury Department to lessen the burden on banks, including limiting the number of financial firms that must face the annual exams.


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