No cornucopia of higher dividends and multi-billion dollar buybacks for America’s 23 biggest banks (including some foreign banks like Deutsche and Barclays), as many analysts have forecast.
Their estimates of up to $US100 billion to be dispensed via buybacks and dividend increases turned out to be well off the mark – $US30 billion in new buybacks, on top of existing programs for others, and collectively an extra $US2 billion a quarter for the majors like Bank of America, Goldman Sachs, JPMorgan and Wells Fargo.
Analysts did point out that the excess capital remains in place on bank balance sheets, but instead of spreading the surplus freely, the banks are hanging on to a lot of it while they wonder about higher inflation and interest rates and the impact of those on customers.
Then there’s financing the expected rise in economic growth and the negative impact of Covid, which is again starting to return (California clamped down and now says masks have to be worn in entertainment areas at night from now on).
They all have their June quarter reports to release from mid-July onwards where they will be asked to explain these decisions and talk about capital management plans down the track.
The immediate reluctance of most big US banks to go to a new buyback campaign tells confirms the desperation of Australian brokers and bank analysts who trying to drum up the idea of big buybacks from our big four, led by the Commonwealth.
Higher dividends seem more likely, especially from the Commonwealth which already topped the interim payouts with $1.50 a share, with none of the reserves releases seen in the March interims from Westpac, ANZ and the NAB.
Morgan Stanley led the way by doubling its quarterly dividend and announced a new $US12 billion buyback.
The bank said its dividend will jump to 70 US cents a share starting in the third quarter, and it would buy up to $US12 billion of its own stock through June 2022.
Morgan Stanley shares jumped 4% in after-hours trading and then eased to end up 2.6% and the best performed of the big banks.
Morgan Stanley’s new capital plan appeared to be among the most aggressive of the banks rushing to disclose at the market close.
Wells Fargo shares were up 1% before it announced well after trading closed, that it was doubling its quarterly from 10 cents a share to 20 cents and announced a buyback of $US18 billion. The shares eased to be up just half a per cent.
Wells Fargo has been operating under strict supervision and capital controls from the Fed for several years because of a multi-billion dollar product mis-selling scandal and staff abuse allegations saw successive CEOs and board members turfed out.
America’s biggest bank, JPMorgan Chase boosted its dividend by 11% to $US1 per share. JPMorgan said it “continues to be authorized” to tap the existing $US30 billion share repurchase plan.
Investors sent the shares down 0.2% in after-hours trading
Number 2 US bank, Bank of America revealed a 17% rise in its quarterly dividend from the third quarter.
In April, the bank announced a $US25 billion share repurchase plan. Its shares were up a tiny 0.07% after hours.
Goldman Sachs is lifting its quarterly payout 60% – from $US1.25 a share to $US2 a share.
In contrast, Citigroup failed to lift its dividend, announcing in a statement that it expects to continue with its planned quarterly common dividend of at least 51 cents share, announced in April this year.
Citi shares fell 0.8% as investors were surprised by the decision.
The announcements followed the release by the Federal Reserve of the results of its latest stress tests of 23 big US banks (a couple of smaller banks volunteered for the test while there are a number of foreign banks involved as well).
The Fed said all 23 banks that took the 2021 stress test passed, with the industry “well above” required capital levels in a hypothetical economic downturn. As a result they would be allowed to lift dividends and buybacks from the September quarter.
Banks here are healthy as well and higher dividends will go a long way to justifying the strength in the sector’s share rises this year.
But the absence of a buyback, especially from the Commonwealth will upset some in the markets.