Big Banks Raise Dividends, Boost Buybacks After Less-Stressful Stress Test

The CEOs of Goldman Sachs, Citigroup, and JPMorgan Chase. Left to right: David Solomon, Jane Fraser, and Jamie Dimon. (Getty Images (3))

The largest U.S. banks on Tuesday announced fresh plans for stock buybacks and dividends following the Federal Reserve’s disclosure of positive annual stress test results, a sign that some of the world’s most systemically important lenders are sitting on more than enough capital.

JPMorgan Chase said it plans to increase its quarterly dividend to $1.50 per share and authorized a new $50 billion buyback program, effective Tuesday. Bank of America is boosting its dividend to $0.28 per share while Wells Fargo is increasing its own to $0.45.

Morgan Stanley is upping its dividend to $1.00 per share, meanwhile, and reauthorized a multiyear share buyback plan of up to $20 billion. The plan doesn’t have a set expiration date, the firm noted. Goldman Sachs and Citigroup are increasing their dividends to $4.00 and 60 cents per share, respectively.

After the Fed releases results every year, bankers determine how they will use excess capital. Investors largely expected these moves after the Fed said each of the 22 participating banks cleared last week’s test that featured a less dramatic scenario than in 2024.

This year, banks’ balance sheets were subject to a hypothetical global recession with elements including unemployment rising to 10% and housing prices falling 33% from current levels.

Banks’ stress capital buffers, or SCBs—a closely watched, required capital cushion that hinges on stress test results—were broadly expected to decline from last year, in a positive sign for banks’ health. Regulators require a buffer of at least 2.5%. Here’s a look at banks’ expected SCBs.

The banks’ new capital plans come as regulators weigh significant changes to the tests, in moves that would appease longtime demands from Wall Street. Bank executives and their influential lobbying groups have fought regulators for years over the test, which the Dodd-Frank Act established in its current form after the financial crisis of 2007-09 to assess banks’ health and vulnerabilities.

At the heart of the tension between bankers and their regulators isn’t whether the tests should exist; both sides agree they should. Last month, JPMorgan Chase Chief Executive Jamie Dimon said that although he thinks the test’s current form is “dead wrong,” he said, “I like stress testing.” In 2019, Fed Chair Jerome Powell called stress testing “perhaps the most successful supervisory innovation of the postcrisis era.”

The subject of fierce disagreement is rather how the tests are formulated. Banks have long argued they don’t have insight into how the test’s conditions are determined and that they don’t accurately account for improvements banks have made since the global financial crisis. They say they can’t plan for how much capital they must hold because the parameters change from year to year.

That is mostly by design. Models are designed independently and without advance input from banks so they can reflect realistic periods of stress, which can be unpredictable and unforeseen.

Some regulators and consumer advocates say tests that become easier for banks to navigate may prompt looser risk oversight.

The Fed’s former vice chair for supervision, Michael Barr, said in 2023 that “using scenarios that test for the same underlying risks year after year could disincentivize firms from investing in their own risk management as the test becomes predictable.” Michelle Bowman, Barr’s replacement, is seen as a champion for less stringent bank oversight.

Powell, whose term as chair expires next spring, said in a 2019 speech that while the tests must “evolve,” tests’ conditions also must change to remain reliable gauges of banks’ stability.

“Banks will need to be ready not just for expected risks, but for unexpected ones,” said Powell, whose term as a Fed governor ends in 2028. “Thus, the tests will need to vary from year to year, and to explore even quite unlikely scenarios.”

Write to Rebecca Ungarino at rebecca.ungarino@barrons.com