JPMorgan, PNC Bank and U.S. Bancorp will be the first banks to raise dividend payouts if the Federal Reserve finally lifts its restriction on such a move stemming from the credit crisis, according to analysts.
“We believe that (PNC) , (USB) , and (JPM) shares could be particularly strong, given their strong capital levels and the companies' stated desires to increase dividend payments,” said Paul Miller, FBR Capital Markets analyst, in a note.
The Fed is expected to lift capital restrictions on healthy banks soon, according to reports. The CEOs of Wall Street’s major institutions have been lobbying to do so since dividends have historically been a big part of the investing dynamic for the sector.
On his October 13 earnings conference call, JPMorgan Chief Jamie Dimon said he wanted to reinstate the dividend in the first quarter of next year. He said that regulators were applying additional stress tests to the banks before the implementation of the international Basel 3 capital requirements in order to figure out who would be healthy enough to do just that.
“Strong banks must show ‘ability’ to meet Basel 3 capital requirements, with sufficient cushion to cover Dodd-Frank capital requirments,” said Morgan Stanley’s Betsy Graseck in a note. “All large cap banks reach the minimum standard by the first quarter 2011, except Bank of America .”
FBR’s Miller adds that they will have had to pay back the TARP money too, of course.
The overall payout ratio (dividend per share divided by EPS) for the sector will more than double next year to 15 percent, according to Morgan Stanley. It will nearly double again to 28 percent in 2012, the firm said. The payouts of JPMorgan, PNC and U.S. Bancorp will hit 27 percent, 34 percent and 36 percent respectively in 2012.
Financial stocks have led the rally this week in stocks, boosted first by the Fed’s quantitative easing announcement and then by President Obama’s stated openness to dividend tax cut extensions. The report about the Fed loosening restrictions, first reported by the Wall Street Journal, was the cherry on top. The Financials SPDR exchange-traded fund is up more the 6 percent this week. The next best group was energy, up just over 4 percent.
“Stocks are reflecting current returns, no expected returns,” wrote Morgan Stanley’s Graseck. “We think market is missing capital management (dividends and buybacks) to resume in the second quarter of 2011, a key catalyst for large cap bank stocks.”
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