Federal Reserve Approves Dividend Increases and Share Buybacks for Major US Banks

The Federal Reserve has given the green light to major US banks to raise dividends and buy back shares, deeming them strong enough to withstand a major economic downturn. However, Bank of America was given conditional approval, while the US divisions of Deutsche Bank and Santander were rejected due to inadequacies in their financial risk planning. The annual stress tests, which evaluated 31 banks, determined that 28 are capable of maintaining lending through another financial crisis. This marked the second consecutive year that Santander's US division failed the stress tests, and Deutsche Bank's US operations showed significant deficiencies in risk identification.

Key Takeaways:

• 28 major US banks, including JPMorgan Chase, Citigroup, and Wells Fargo, were approved to raise dividends and buy back shares after passing the Fed's stress tests.
• Bank of America received conditional approval, with plans to buy back $4 billion in stock by September 30, pending Fed approval.
• The US divisions of Deutsche Bank and Santander were rejected due to weaknesses in their financial risk planning, with Deutsche Bank's US operations showing "numerous and significant deficiencies" in risk identification.
• Citigroup, which failed the stress tests last year,passed this time, with CEO Michael Corbat avoiding potential job loss under shareholder pressure.
• The banks must maintain a strong financial foundation to withstand a severe economic downturn and keep lending.
• The Fed conducted annual stress tests of the 31 largest US banks since 2009, with all banks showing adequate capital buffers to withstand a recession.
• Bank of New York Mellon Corp., BB&T Corp., and others were among the other banks tested by the Fed.

Statistics:

• 28 major US banks were approved to raise dividends and buy back shares, representing 90% of the 31 banks tested.
• Bank of America was given conditional approval to buy back $4 billion in stock by September 30.
• The US divisions of Deutsche Bank and Santander were rejected, with $118 billion and $55 billion in assets, respectively.
• Citigroup's CEO, Michael Corbat, avoided potential job loss under shareholder pressure.
• The Fed has conducted annual stress tests of the 31 largest US banks since 2009, with all banks showing adequate capital buffers.

Sources:

• Federal Reserve
• Bank of America
• JPMorgan Chase & Co.
• Citigroup Inc.
• Wells Fargo & Co.
• Deutsche Bank
• Santander
• NAB Research