The Fed’s stress test showed that the US banking system is in good health. Vice Chairman Randal K. Quarles, vice chairman of the Fed’s Board of Governors, said in the accompanying report that “the results confirm that our financial system remains resilient.” He also said, “The nation’s largest banks are significantly stronger than before the crisis and would be well-positioned to support the economy even after a severe shock.”
The stress test was done on 18 major banks. Except for Credit Suisse (CS), the other banks got through the stress test and the regulator approved their capital return plans. A CNBC report citing a senior Fed official, said, “J.P. Morgan and Capital One reined in their initial capital plans by resubmitting their payout plans, using a so-called mulligan to stay above the required minimum.”
Capital distribution projects
Banks have announced their capital distribution plans. Bank of America plans to return almost $37 billion to shareholders over the next four quarters beginning in the third quarter. The returns include buybacks and a 20% increase in the dividend. Bank of America has returned $62 billion to shareholders since the beginning of 2015.
JPMorgan Chase (JPM) plans to increase its quarterly dividend from $0.80 per share to $0.90 per share. JPMorgan Chase plans to repurchase $29.4 billion of its shares in the one-year period beginning on July 1. Wells Fargo plans to increase its third-quarter dividend from $0.45 per share to $0.51 per share. Wells Fargo plans to repurchase $23.1 billion of its stock beginning in the third quarter. The repurchase program would last for four quarters. Wells Fargo (WFC), JPMorgan Chase, and Bank of America (BAC) form part of Berkshire Hathaway’s portfolio. Berkshire Hathaway is underperforming the S&P 500 (SPY) by a wide margin this year. However, looking at aggregate returns over the last five decades, Berkshire Hathaway has outperformed the S&P 500 by a wide margin.
Citigroup (C) plans to increase its quarterly dividend from $0.45 per share to $0.51 per share. Citigroup plans to repurchase up to $17.1 billion worth of its shares in four quarters beginning in the third quarter. The banking industry’s stress tests are significant this year. Several observers, including leading banks, expect a recession. Read Should You Be Paying Attention to Recession Pundits? to learn more.