Banking Industry Should Feel Free To Slash, Hip Check General Population Into Boards Again, Says BarCap Analyst

Author:
Bess Levin
Updated:
Jan 14, 2019
Original:
Mar 18, 2011

The Fed plans to notify financial institutions that passed a second round of stress tests that they can begin returning money to their shareholders, an important sign of the banking system’s speedy recovery. Banks are expected to review the Fed’s findings with their boards and could put out a flurry of announcements as early as Friday afternoon detailing their plans. In the first wave, JPMorgan Chase increased its dividend payout to 25 cents a share and announced plans to buy back $15 billion of stock. Wells Fargo said it will pay a special dividend of 7 cents per share and plans to purchase 200 million shares. “It signals the banking industry is back on its feet,” said Jason Goldberg, a banking analyst Barclays Capital. “Once out of the penalty box, we look for the dividend payout ratios and earnings to grow over time.” [Dealbook]

Wells Fargo Bless this Mess

Charlie Scharf offers bread and circuses to keep the Wells Fargo masses from calling for his head.

scantron

Well, their investors will get the treat, but all the same.

More stress tests, bleargh. I guess the news is that Citi "failed", though I can't get all that excited by that because it didn't exactly "fail" in the sense of now it's being forced to raise capital / broken up / burned to the ground. Instead it failed assuming it follows the capital plan it submitted to the Fed, which is clearly a capital-lowering rather than capital-raising plan. I ballpark it at $10bn of share repurchases and dividends,* which is ... well, it's pretty big for Citi. So they can just not do that then. Or not do quite as much of that, which seems to be their plan: In light of the Federal Reserve’s actions, Citi will submit a revised Capital Plan to the Federal Reserve later this year, as required by the applicable regulations. The Federal Reserve advised Citi that it has no objection to our continuing the existing dividend levels on our preferred stock and our common stock, and we plan to do so, subject to approval by the Board of Directors each quarter. The Federal Reserve also advised that it has no objection to Citi redeeming certain series of outstanding trust preferred securities, as Citi proposed in its Capital Plan. We plan to engage further with the Federal Reserve to understand their new stress loss models. We strongly encourage the public release of these models and the associated benchmarks and assumptions. We believe greater transparency in this process will best serve all banking institutions and their shareholders as well as the international regulatory community and market participants, and will encourage a level playing field globally. There are at least two ha! moments in that snotty last paragraph. First there's the fact that the Fed had planned to release the stress test results on Thursday and got gun-jumped by Jamie Dimon. So much for Fed transparency. But also, specifically, as people are all running around suing each other about the Fed maybe kind of encouraging bank CEOs to hide material information from investors, it is odd that the Fed would have the stress test results and sit on them for two days. Imagine the scenario where Jamie Dimon, Vikram Pandit, and the Fed all know that JPM passed and was going to do a largeish buyback, while Citi failed and was going to do a ... I guess somewhat smaller buyback - and they didn't tell anyone from today until Thursday. If you sold JPM to buy C today, wouldn't you be kind of annoyed?**

2014 Stephen Schwarzman was a regular pauper compared to 2015 Stephen Schwarzman.

[Mike Corbat wipes sweat off brow.]

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