The green light to unleash billions to shareholders may be given to the CEOs of the nation’s biggest banks as soon as today.
The Federal Reserve is expected to nix a rule that handcuffed the banks from raising dividends and buying back shares during the pandemic depending on whether the banks pass the stress tests. The results, released after the close of trading, will show whether 19 U.S. banks have capital levels that can withstand a crisis.
Ticker Security Last Change Change % BAC BANK OF AMERICA CORP. 40.20 +0.23 +0.58%
"We’d expect, assuming we get through the stress test, which is in the process and I’m sure we will, and [as] the new rules come in, we expect to increase our dividend and increase our share buybacks because frankly, it’s simple, we’re making good money doing a great job for our customers and a great job for society and, therefore, our shareholders ought to benefit too so that’s what we’ll do," Bank of America CEO Brian Moynihan said on FOX Business' "Mornings with Maria" last month.
BofA's dividend yields 1.78%.
Ticker Security Last Change Change % WFC WELLS FARGO & CO. 43.96 +0.42 +0.96%
Investors are also eyeing Wells Fargo, whose dividend is among the lowest in the banking sector, with a yield of 0.90%.
"It's not lost on us that our dividend is quite low, certainly relative to where we're earning today and as we look forward," said CEO Charles Scharf during the company’s April earnings call. "We would like to increase the dividend to a more reasonable level."
Piper Sandler analyst R. Scott Siefers also notes the bank is in a strong position for a robust share buyback.
"There is no denying the potential power of repurchase for this company. The Fed’s asset cap has constrained balance sheet growth, allowing a massive horde of capital to build" he wrote in a note to clients.
Ticker Security Last Change Change % JPM JPMORGAN CHASE & CO. 151.12 +0.91 +0.61%
JPMorgan, whose dividend yields 2.37%, is sitting on a fat pile of cash that Jamie Dimon touted at an investment conference hosted by Morgan Stanley last week.
"If you look at our balance sheet, we have like $500 billion of cash. And we have actually been effectively stockpiling more and more cash waiting for opportunities to invest at higher rates" he said.
All in all, Siefers points out the question is not if banks will return capital to shareholders, but when.
"The only real wildcards to us are how quickly banks will choose to rationalize their excess capital (in other words, timing)" he wrote.
"We expect our banks to boost their dividends by a median 7.6% from the current levels, and we see them repurchasing shares equal to 6.4% of 1Q21 shares outstanding in 2H21/1H22" he predicts.