Bank of America's Stress Test Snag: Conditional Non-Objection and Share Buyback Announced

Strategic Insights -

Bank of America was the sole major U.S. bank to stumble in the second round of annual stress tests, initiated by the Federal Reserve. Despite this, the bank was allowed to submit a revised plan and announce a $4 billion share buyback, contingent upon addressing "weaknesses in certain aspects of Bank of America's loss and revenue modeling practices and in some aspects of its internal controls." The bank's shares declined by about 1% following the announcement.

Key Takeaways:

  • Bank of America was the only major U.S. bank to receive a conditional non-objection from the Fed, while its plan was rejected due to quantitative concerns.
  • The bank's quarterly dividend remains unchanged at $0.05 per share, but it will have to resubmit its plan to the Fed.
  • Goldman Sachs will increase its quarterly dividend by $0.05 to $0.65 per share and buy back up to $0.65 billion worth of shares.
  • J.P. Morgan will buy back up to $6.4 billion worth of shares and increase its dividend to $0.44 from $0.40 per share.
  • Citigroup will hike its dividend to $0.05 from $0.01 per share, marking the first time it has increased its dividend since the financial crisis.
  • Morgan Stanley will buy back up to $3.1 billion in shares and increase its quarterly dividend to $0.15 per share from $0.10 per share.
  • American Express will raise its quarterly dividend to $0.29 per share from $0.26 while buying back up to $6.6 billion in stock.

Statistics:

  • 28 of the 31 capital plans submitted by the largest U.S. bank holding companies were approved by the Fed.
  • 3 bank plans rejected by the Fed due to quantitative concerns.
  • 1 major U.S. bank received a conditional non-objection from the Fed.
  • $4 billion: amount of share buyback announced by Bank of America.
  • $0.05: Bank of America's quarterly dividend, unchanged.
  • $0.65 per share: Goldman Sachs' increased quarterly dividend.
  • $0.44: J.P. Morgan's increased dividend per share.
  • $0.01 to $0.05: Citigroup's quarterly dividend increase.
  • $0.65 billion: Goldman Sachs' share buyback limit.
  • $6.4 billion: J.P. Morgan's share buyback limit.
  • $0.10 to $0.15: Morgan Stanley's quarterly dividend increase.
  • $6.6 billion: American Express' share buyback limit.

Sources:

  • Federal Reserve: "Annual Stress Test Results" (http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20150311a1.pdf)
  • TheStreet: "Why Goldman Sachs' Share Repurchases Matter to Investors" (http://www.thestreet.com/story/13072329/1/why-goldman-sachs-share-repurchases-matter-to-investors.html)