In a sign of their financial strength, several U.S. banks, including JPMorgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley, have announced increases to their third-quarter dividends. These dividend hikes come after the banks successfully passed the Federal Reserve’s annual stress test, which assesses their ability to withstand a severe economic downturn.
JPMorgan, the largest U.S. lender, plans to raise its quarterly stock dividend from $1.00 per share to $1.05 per share. Wells Fargo, on the other hand, will boost its dividend from 30 cents a share to 35 cents a share. Goldman Sachs and Morgan Stanley will also see an increase in their dividends, with Goldman Sachs rising from $2.50 to $2.75 per share and Morgan Stanley increasing from 77.5 cents to 85 cents per share. Citigroup, another major player, will raise its dividend from 51 cents to 53 cents per share.
These dividend hikes come as a result of the banks passing the Federal Reserve’s stress test, which evaluates their capital strength and ability to weather a major economic slump. The stress test scenario projected a combined $541 billion in losses for the 23 tested banks, which still maintained more than double the amount of capital required. Despite recent challenges faced by the industry, including the failures of three large regional banks and interest rate hikes introduced by the Federal Reserve, the largest U.S. banks have remained resilient.
The news of the dividend hikes has been met with positive feedback from rating agency Moody’s Investors Service. In a note, Moody’s described the results as “a credit positive” and commended the banks for their ability to withstand a severe stress scenario while maintaining a capital buffer above regulatory requirements.
Citigroup, in addition to the dividend increase, also announced that it repurchased $1 billion of common stock during the second quarter. The bank’s CEO, Jane Fraser, stated that Citigroup will continue to evaluate its capital actions on a quarterly basis. Notably, Citigroup’s stress capital buffer requirement increased from 4.0% to 4.3%, contrasting with its larger peers whose requirements dropped. The stress capital buffer reflects a bank’s performance on the stress test and serves as an additional layer of capital introduced in 2020.
Overall, these dividend hikes serve as a testament to the strength and resilience of the U.S. banking sector. The successful passing of the Federal Reserve stress test and the subsequent increase in dividends demonstrate the banks’ confidence in their ability to navigate through any economic challenges that may arise in the future.
