JPMorgan, Wells Fargo boost dividends after Fed tests

Reuters News
Posted: Mar 22, 2011 12:38 PM
JPMorgan, Wells Fargo boost dividends after Fed tests

By Rachelle Younglai and Maria Aspan

WASHINGTON/NEW YORK (Reuters) - JPMorgan Chase & Co, Wells Fargo & Co and other large U.S. banks announced plans to boost their dividend payments after passing the Federal Reserve's second round of stress tests.

The announcements came minutes after the central bank said it would allow some of the 19 largest U.S. banks to use some of their massive capital cushions to buy back shares, repay capital to the government and boost dividend payments.

"The return of capital to shareholders under appropriate conditions is a step in the process of improvement in the financial sector and will help to promote banks' long-term access to capital," the central bank said in a statement.

Improvements in economic conditions and cash positions at the largest financial institutions have convinced the Fed that some of the largest banks can start to reduce capital cushions built up in response to the financial crisis.

Banks such as BB&T, BNY Mellon and U.S. Bancorp also announced plans on Friday to hike dividend payments, in the latest sign that the banking system is recovering.

"This is one of the final steps in terms of showing the redemption of the banks from 2008," said Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel, which owns bank stocks.

The Fed started notifying the 19 largest banks, including Citigroup, Bank of America and Goldman Sachs, whether they passed the second round of stress tests and whether they have won approval to pay out dividends.

But the Fed left it to the banks to disclose individual results.

The central bank restricted dividend payments to 30 percent or less of the company's expected earnings -- a ratio well below the 50 percent level paid out during better times.

European regulators are running through their own set of stress tests.

Investors have been eager for banks to restore the quarterly payouts after they were either suspended, or slashed to as little as a penny a share, at the height of the 2007-2009 financial crisis.

During this round of stress tests, the Fed relied on the banks to analyze whether they could withstand adverse economic conditions. In 2009, the Fed focused on generating its own estimates of banks' capital under difficult economic conditions.

According to the Fed, common equity increased by more than $300 billion at the big banks from the end of 2008 through 2010.

(Reporting by Rachelle Younglai in Washington and Maria Aspan in New York; Editing by Andrea Ricci and Tim Dobbyn)