Big banks pass stress tests
On Thursday, June 30, 2016, big banks (XLF), including JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C), passed the second round of the Fed’s annual stress tests. Morgan Stanley (MS), Deutsche Bank (DB), and Banco Santander (SAN) failed their tests.
Morgan Stanley’s capital plans got conditional approval, and it will need to resubmit its capital plan. Deutsche Bank (DB) and Santander also failed last year. Although they did improve on capital planning methodology, they struggled with “material unresolved supervisory issues that critically undermine its capital planning process.”
Fed approves capital plans for some banks
Banks that passed their stress tests were approved to return capital to their shareholders in dividends and share buybacks. According to a Goldman Sachs report, banks could return capital equal to an average of 83% of their estimated earnings over the next year, up from 69% since last year’s test. This surpassed analyst expectations.
This is good news for investors seeking dividends in banking stocks at a time when the ten-year Treasury yield is less than 1.5%. Leading brokerage firm CLSA mentioned in a report that it expects returns through dividends and buybacks to rise to $51 billion in the next year for JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC).
Bank of America (BAC) and Citigroup (C) announced large capital plans last week. In the past, they held back their repurchase programs. Their dividend yields are well below JPMorgan’s and Wells Fargo’s (WFC).
In the next part of the series, we’ll look at Bank of America’s capital plans for 2016.