Banks are growing more comfortable returning profits to their shareholders
by Annika Inampudi
Four of the biggest US banks almost doubled their stock buybacks in the first full quarter following the Federal Reserve’s annual stress test, which the lenders all comfortably passed in June.
The four firms that reported third-quarter results on Tuesday repurchased more than $21 billion in the period, up from $11.5 billion a year earlier. The stock dividends they paid out climbed by roughly 10% from the same period a year ago.
So far, Citigroup Inc. had the biggest jump in share repurchasing, quintupling its buybacks from last year’s third quarter. The New York-based bank has long signaled its intentions to return value to shareholders. In January, Citigroup launched a program to buy back $20 billion of stock over multiple years.
Banks are growing more comfortable returning profits to their shareholders as regulators look to ease key capital requirements. This year’s exam imagined smaller drops in asset prices than the scenario in the 2024 test, and most large lenders saw declines in the capital they must hold that’s tied to the test results. Regulators also plan to relax the so-called supplementary leverage ratio and largely start from scratch on a Biden-era proposed capital rule that banks opposed.
The dividend announcements came as JPMorgan Chase & Co., Citigroup, Wells Fargo & Co. and Goldman Sachs Group Inc. kicked off third-quarter earnings season Tuesday by posting revenue that beat analysts’ estimates. Despite those hauls, some bank leaders tempered shareholders’ optimism by signaling fresh concerns about potential troubles in the lending environment or signs of economic weakness.
JPMorgan executives have often said they’re not keen on buying back stock while share prices remain high, even amid the bank’s mounting pile of excess cash. Chief Financial Officer Jeremy Barnum reiterated that view while discussing quarterly results, saying its leaders “don’t love buying back the stock at these levels,” though noted they want to keep excess cash levels “reasonable.” His firm authorized a $50 billion share buyback program in July.
Elsewhere, the Federal Reserve’s top bank cop, Michelle Bowman, said Tuesday that she soon intends to unveil additional changes to stress tests.
Speaking at the Institute of International Finance’s annual gathering in Washington, she said the Fed has been in the “process of introducing incremental proposals to improve the stress testing process and we’ll be in the next week or so introducing another iteration of that.”
Copyright Bloomberg News
