It’s official: The last-ever Federal Reserve stress tests are also the first in which everyone passed, albeit some—we’re looking at you, Capital One, with a quizzical glance in your direction, too, Goldman Sachs—with somewhat less than flying colors. Still, in celebration of the achievement, and to mark the advent of the post-risk, post-regulation world under President Trump (and possibly to buff up J-Yells’ bona fides before begging Gary Cohn not throw her back out into the mean hallways of academia), the Fed was feeling generous, signing off on everyone’s plans to reward their shareholders, even though everyone asked for some pretty rich rewards with some pretty stressful potential consequences.
On average, the group of firms taking part in the stress tests requested payouts that are near 100% of their expected earnings over the next year, up from 65% last year, senior Fed officials said. That means banks in some cases will be able to start whittling away at capital buffers that many bank executives say are well in excess of what is needed to absorb potential losses.
Tossing its dunce cap aside, Citigroup announced its biggest dividend ever, and plans to blow 132% of its earnings this year on more. Not to be outdone, Jamie Dimon & co. boosted their dividend and announced JPMorgan Chase’s biggest stock buyback ever. Morgan Stanley also plans to cut checks to shareholders in excess of what it plans to make this year. Bank of America plans a dividend so big that Warren Buffett may well decide to convert his preferred shares and become the its biggest shareholder. We may not get an Obamacare repeal or tax reform, but at least the banks are getting what they wanted from the Trump presidency.
Such lavish payouts are exactly what investors had been hoping banks would deliver under a Trump presidency. While the administration has no direct role in the stress test, this year is the first that a Republican Fed governor, Jerome H. Powell, has overseen the process….
“After seven years, at some point, you have to get it right,” said David Wright, a managing director in the bank regulatory practice of Deloitte Advisory. “This is quite a victory for the Fed to get everyone close to a perfect score.”
Fed ‘Stress Tests’ Clear All Banks to Issue Payouts to Shareholders [WSJ]
Big Banks Set to Pay Out Largest Dividends in a Decade [DealBook]
Capital One Gets ‘Conditional’ Passing Grade on Fed Stress Test [WSJ]
Citi doubles dividend, bank shares jump after industry passes Fed stress tests [CNBC]
Berkshire Hathaway On Path to Be Top Bank of America Holder [WSJ]