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Citi doubles dividend, bank shares jump after industry passes Fed stress tests

  • The Federal Reserve approved Wednesday the capital return plans of all 34 banks it reviewed in the second part of an annual stress test.
  • Citigroup doubled its quarterly dividend to 32 cents after getting the Fed blessing.
  • Citi and JPMorgan announced their biggest share buybacks ever.

Several big banks announced significant increases in their plans to return capital to shareholders after passing the Federal Reserve's annual stress test. Financial shares jumped in extended trading.

Citigroup was the highlight after hours, doubling its quarterly dividend to 32 cents per common share and announcing a common stock repurchase program of up to $15.6 billion. That would be the biggest ever buyback for Citi, surpassing a $15 billion buyback announced in 2005 before the financial crisis, according to Richard Peterson of S&P Global Market Intelligence.

The shares jumped more than 2 percent in after-hours trading.

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 Financials Select SPDR ETF (XLF) climbed more than 1 percent in after-hours trade, after closing 1.58 percent higher Wednesday in its third straight day of gains.

"For some time, we have retained a significant amount of capital in excess of what is needed to prudently operate and invest in the firm. Now we can begin delivering on two of our most important priorities —returning a higher level of that capital to our shareholders and improving Citi's overall returns," Citi CEO Michael Corbat said in a release.

JPMorgan Chase said it would raise its quarterly dividend by 6 cents to 56 cents a share, effective the third quarter of 2017. The financial giant also said it has authorized share buybacks of up to $19.4 billion between July 1 and June 30 next year. That repurchase program was the largest in its publicly recorded history.

JPMorgan shares climbed more than 2 percent in extended trade.

Bank of America said it plans to increase its quarterly common stock dividend to 12 cents a share, a 60 percent increase, beginning in the third quarter of 2017. The bank's board also authorized a $12 billion repurchase in common stock from July 1 through June 30, 2018. The board also approved an estimated $900 million in repurchases to offset shares awarded under equity-based compensation plans during the same period.

Shares climbed more than 1 percent in after-hours trade.

Morgan Stanley said it would raise its divided to 25 cents a share, up from 20 cents a share. The dividend increase is set to be declared for the third quarter of 2017.

The bank also said it will increase share repurchases from $3.5 billion to up to $5 billion of outstanding common stock for the four quarters beginning the third calendar quarter of this year. Shares climbed 1.4 percent in after-hours trade.

"At a high level we are seeing the health of the banking system here and it's been a process to return incremental capital," said Devin Ryan, analyst at JMP Securities. "This is a big step forward for the industry."

Goldman Sachs did not give details on its plan to return capital to shareholders. The bank only said the plan allows share repurchases, dividend increases, and issuance and redemption of other capital securities. Shares climbed more than 1 percent in extended-hours trade.

"We are well positioned to continue to return capital to our shareholders while expanding our client franchise," Chairman and Chief Executive Officer Lloyd Blankfein said in a release.

Wells Fargo's capital return plan also received the Fed's approval, despite some expectations that a consumer sales scandal might negatively affect the policymakers' decision.

Wells Fargo said it expects to raise its common stock dividend by 1 cent to 39 cents, for four quarters beginning in the third quarter of this year and pending approval by the board. The firm's plan also includes an up to $11.5 billion of common stock repurchases, compared to $8.3 billion in share repurchases in the four quarters ended in the first quarter of 2017.

Capital One Financial was the anomaly in the Fed's review, receiving no objection on condition that it submit a new capital plan by Dec. 28 in order to address "weaknesses in its capital planning process."

The stock fell 2 percent in after hours trading.

Watch: State Street announces $1.4B buyback