Morgan Stanley, Goldman Sachs, Bank of America and Wells Fargo hiked their dividends on Monday after the U.S. banks cleared their annual stress test exerciselast week.The U.S. FederalReserve said on Thursday the country's largest lenders could easily weather a severe economic downturn, giving them a clean bill of health and paving the way for them to redistribute excess capital to shareholders.
The results allowed banks to announce higher dividends despite the Fed's test being tougher than in 2021, pushing up some lenders' required capital buffers more than expected.
However, JPMorgan & Chase and Citigroup kept their payout flat, as a challenging economic environment may require more capital. Citi will likely give an update on its capital plans at its upcoming earnings on July 15, a source familiar with the situation said.
This year's dividend hikes were more subdued than in 2021, a bumper year for big bank capital payouts, after lenders amassed piles of excess cash during the pandemic to cover loan losses that never materialized. Morgan Stanley, for instance, doubled its dividend in June 2021.
Under the annual stress test exercise established following the 2007-2009 financial crisis, the Fed assesses how banks' balance sheets would fare against a hypothetical severe economic downturn. The results dictate how much capital banks need to be healthy and how much they can return to shareholders.
Goldman Sachs said on Monday it would hike its dividend by 25%, to $2.50 per share, and Morgan Stanley said it plans an increase to 77.5 cents per share and a share buyback program of $20 billion. Bank of America raised its dividend by 5% to 22 cents per share and Wells Fargo said it expects to hike its dividend to 30 cents from 25 cents a share.
Shares in Morgan Stanley jumped 3.5% after hours, while Goldman rose 1.4%.
JPMorgan maintained its dividend at $1.00 a share, citing "higher future capital requirements." Citi also said it would be able to keep it flat at 51 cents "in a range of stress scenarios."
The test sets each bank's "stress capital buffer," an extra capital cushion on top of the regulatory minimum. The size is determined by each bank's hypothetical losses under the test.