Banks Await Test Scores; Investors Wait for Dividends
The Federal Reserve on Friday will deliver the results of its latest stress tests to 19 of the country's systemically important banks.
It's expected that after months of waiting, some of the healthiest among the group will be allowed to raise their dividends and initiate stock buybacks immediately, while others may have to wait. None of the banks will be allowed to discuss the results of their stress tests.
While banks declined to comment on the timing of any announcements for fear of upsetting the Federal Reserve, people familiar with the situation said the banks will be visited by Fed representatives Friday morning, told the results of the stress tests, and then allowed to make announcements about how they intend to return capital to shareholders.
Last Friday, Wells FargoCEO John Stumpf told CNBC the bank would shout from the "highest hill" if it receives an OKto boost its dividend and buy back stock.
Wells Fargo is among the banks, along with US Bancorp and JP Morgan Chase , expected to receive approval to raise their dividends.
How much they raise the payouts remains uncertain. Some may not raise payouts to pre-crisis levels in one fell swoop, but instead choose to raise them in two or three phases. JPMorgan, for example, has said it eventually would like its dividend to have a payout ratio equal to 30 percent of earnings.
Presently, the bank has a quarterly dividend of $0.05 a share, down from the $0.38 a share it paid each quarter before the crisis. Returning the dividend to those levels would put it close to a 30 percent payout ratio, but it hypothetically might choose to raise it to, say, $0.20 a share before increasing it to $0.38. JPMorgan has also said it's interested in buying back shares.
Goldman Sachs has said its first order of business would be to repurchase the $5 billion in preferred stock that Warren Buffett bought from the firm at the height of the financial crisis. In a 10-K filing, the bank has said buying back the stock warrants will lop $2.80 a share from its earnings during the quarter it takes the action, and will reduce the company's book value by $3.00 a share. Goldman Sachs closed Thursday up $0.89 at $155.75 a share.
Morgan Stanley has repeatedly said it wants to reinvest excess capital in its business and to buy the rest of Smith Barney. In other words, a dividend increase is unlikely.
Citigroup said it will not seek a dividend increase until 2012, and Bank of America says it will have a modest dividend increase in the second half of this year.