Banking Stocks Surge as Fed Lifts Repurchase Ban

Strategic Insights -

As the Federal Reserve granted lenders the green light to resume stock repurchases, starting in the first quarter, banking stocks saw a significant jump on Monday. The decision, announced alongside the results of a second round of stress tests, came on the heels of the coronavirus pandemic, which had devastated the US economy. According to the Fed's statement, the banking system has been a source of strength during the past year, and today's stress test results confirm that large banks could continue to lend to households and businesses even during a sharply adverse future turn in the economy.

Key Takeaways:

  • Banking stocks jumped on Monday after the Federal Reserve lifted the ban on stock repurchases, with JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo shares rising by 3.6%, 2.9%, 2.3%, and 1.6%, respectively.
  • The Fed's vice chairman for supervision, Randal K. Quarles, stated that the banking system has been a source of strength during the past year, and today's stress test results confirm that large banks could continue to lend to households and businesses even during a sharply adverse future turn in the economy.
  • JPMorgan and Morgan Stanley plan to resume buybacks starting next quarter, while Citi and Goldman intend to do so next year. Bank of America CEO Brian Moynihan has stated that his company plans to buy back stock as soon as it is allowed to.
  • The six biggest US banks could buy back as much as $11 billion of shares in the first quarter under the new distribution policy, according to Bloomberg.
  • Dividends will remain unchanged at least through March and will be capped by whatever each bank returned to shareholders in the second quarter of 2020.

Statistics:

  • JPMorgan Chase shares jumped 3.6% to $123.32.
  • Citigroup shares rose 2.9% to $60.77.
  • Bank of America gained 2.3% to $29.32.
  • Wells Fargo shares rose 1.6% to $29.47.
  • The six biggest US banks could buy back as much as $11 billion of shares in the first quarter under the new distribution policy.

Sources:

  • Federal Reserve: "Stress Test Results Confirm Large Banks' Ability to Lend Through Adverse Future Economy" (https://www.federalreserve.gov/newsevents/pressreleases/bcreg20201218b.htm)
  • Bloomberg: "$11 Billion Stock Buybacks Loom for 6 Largest US Banks" (exact format and publication details not specified)