Friday, March 15, 2013

Big U.S. Banks Boost Dividends, Increase Buybacks

The Federal Reserve disclosed the results of the 2013 Comprehensive Capital Analysis and Review (CCAR) yesterday.

CCAR determines whether the dividend payment increases and/or buybacks proposed by individual banks will be allowed. Only 2 of the 18 banks had their planned capital actions rejected. 2 others were allowed to implement their proposed capital actions but were asked to submit another plan to address some weaknesses by the end of the third quarter.

The rest received no objection from the Federal Reserve on their planned capital actions.*

Wells Fargo (WFC) and U.S. Bancorp (USB) are two of the larger banks that had their capital plans approved outright who will be allowed to both increase their dividends and buyback more stock.

The largest of the U.S. banks in terms of assets, JPMorgan Chase (JPM), also has a capital plan that includes dividend increases and buybacks. The only difference being that -- according to JPMorgan's press release -- it is one of the two banks that must submit an additional capital plan by the end of the third quarter. The plan must address what the Federal Reserve views as weaknesses in their capital planning processes.

The Federal Reserve also did not object to the requested capital actions of Goldman Sachs (GS) but, like JPMorgan, it was conditional. Goldman was similarly asked to resubmit its capital plan by the end of the third quarter. One of the other very large banks -- Morgan Stanley (MS) -- did not ask to increase its dividends or buyback any stock. Morgan Stanley will, however, be allowed to buy the 35 percent of Morgan Stanley Smith Barney it doesn't already own.

Here's a quick summary of the three of the larger banks that were allowed to both increase dividends and buyback stock:**

Wells Fargo
Quarterly dividend increased from $0.25 per share to $0.30
New Annualized Dividend Yield: 3.2% (based upon yesterday's closing price)

Wells Fargo Receives No Objection to its 2013 Capital Plan

The bank said the following in their press release:

Wells Fargo & Company (NYSE: WFC) announced today that the Federal Reserve Board (FRB) has not objected to the Company's 2013 Capital Plan under the recently concluded Comprehensive Capital Analysis and Review (CCAR) of the nation's largest banks.

The Company confirmed that its 2013 Capital Plan includes a proposed dividend rate of $0.30 per share for the second quarter of 2013, subject to consideration and approval by its Board of Directors at its regularly scheduled meeting in April. The plan also includes a proposed increase in common stock repurchase activity for 2013 compared with 2012.

U.S. Bancorp
Quarterly dividend increased from $0.195 per share to $0.23
New Annualized Dividend Yield: 2.7%

U.S. Bancorp Receives Results of Comprehensive Capital Analysis and Review

The bank had the following to say in their press release:

The Company expects to recommend a second quarter dividend of $0.23 per common share, an 18 percent increase over the current dividend rate. At this quarterly dividend rate, the annual dividend will be equivalent to $0.92 per common share. Consistent with the Company's change in the timing of the annual dividend increase, today the board of directors of U.S. Bancorp (NYSE: USB) declared the Company’s first quarter dividend of $0.195 per common share, equal to the prior quarter’s dividend, payable April 15, 2013, to shareholders of record at the close of business on March 28, 2013.

Additionally, the board of directors of U.S. Bancorp has approved a one-year authorization to repurchase up to $2.25 billion of its outstanding stock...

JPMorgan Chase
Quarterly dividend increased from $0.30 per share to $0.38
New Annualized Dividend Yield: 3.0%

JP Morgan Chase Announces Capital Plan

From their press release:

Following the Federal Reserve Board’s release of 2013 CCAR results, JPMorgan Chase & Co. (NYSE: JPM) today announced that:

- The Firm is authorized to repurchase an additional $6 billion of common equity between April 1, 2013 and March 31, 2014.
- The Board of Directors intends to declare the first quarter common stock dividend of $0.30 per share.
- The Board of Directors intends to increase the Firm's quarterly common stock dividend to $0.38 per share, effective second quarter of 2013.

The Federal Reserve Board informed the Firm today that it does not object to the Firm's proposed 2013 capital distribution plan. The Federal Reserve Board also asked that the Firm submit an additional capital plan by the end of the third quarter addressing the weaknesses identified in the Firm's capital planning processes. Following their review, the Federal Reserve Board may require the Firm to modify its capital distributions.

Wells, U.S. Bancorp, and JPMorgan are each selling near multi-year highs. So the dividend yield against the prevailing and much lower market prices that were often available in recent years would be far more attractive.

The tough part, of course, was knowing which of the banks would ultimately weather the chaos of the financial crisis and come out in good shape.

As far as the other big banks go, both Bank of America (BAC) and Citigroup (C) said they will be buying back their stock but neither bank is boosting their dividends.

Bank of America Plans to Repurchase up to $5 Billion in Common Shares

BofA will also redeem roughly $ 5.5 billion in preferred stock.

Citi Statement on 2013 CCAR Planned Capital Actions

Citigroup's planned action is to buyback $1.2 billion of common stock through the first quarter of 2014.

A number of banks, generally somewhat smaller, also have capital actions that either increase dividends, allow for the buying back of their stock, or some combination of both.

Here's a useful summary of what all the 18 banks will (or will not) be allowed to do.


Established long positions in WFC, USB, and JPM at much lower than recent prices. Also, a very small long position in BAC.

* American Express (AXP) received approval to for its plan but had originally asked to buy back more stock until deciding to rein it in.
** Goldman Sachs received no objection on their proposed capital actions but the bank was not specific about whether the actions included dividends and/or stock buybacks.
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