Fri, Jun 30, 2017 - Page 10 News List

Fed approves banks’ investor payouts

ALL BUT ONE:The US central bank did not object to the CCAR plans of large US banks. The sole exception was Capital One Financial, which it asked to submit a new proposal

AFP, NEW YORK

The US Federal Reserve on Wednesday gave the green light to plans by all 34 large banks seeking to provide big payouts to shareholders after the firms passed the annual stress tests.

It is the first time since the rigorous tests were instituted in 2009 the Fed did not object to the banks’ capital plans.

The decision reflects the industry’s improved resilience after years of building up capital in the aftermath of the 2008 financial crisis, Fed officials said.

The US central bank required just one bank, Capital One Financial, to submit a new capital plan by the end of the year, but did not oppose shareholder payouts under the program, the Comprehensive Capital Analysis and Review (CCAR).

“I’m pleased that the CCAR process has motivated all of the largest banks to achieve healthy capital levels and most to substantially improve their capital planning processes,” Fed Governor Jerome Powell said in a statement.

The Fed results were swiftly followed by a barrage of generous payout announcements by the major banks.

While the payouts are popular with investors, some analysts have criticized banks for returning huge sums to shareholders instead of investing in their core businesses or increasing lending.

Bank of America boosted its dividend by 60 percent to US$0.12 per share, and said it planned up to US$12 billion in share buybacks over the next year, plus another US$900 million to offset shares awarded under executive compensation plans.

JPMorgan Chase & Co increased its dividend by US$0.06 to US$0.56 per share and said it could spend up to US$19.4 billion on share repurchases.

Meanwhile, Wells Fargo & Co, which has been hammered by a fake accounts scandal, was cleared to boost its dividend by US$0.01 to US$0.39 per share and spend up to US$11.5 billion on share repurchases.

“We are pleased by today’s CCAR result, which demonstrates the strength of our diversified business model, strong capital position, and our continued focus on risk management,” Wells Fargo chief executive Tim Sloan said.

The stress test is designed to examine how large US banks would handle a financial crisis similar in severity to the one in 2008. The first phase of the test, released last week, showed all 34 banks could withstand a downturn in which US unemployment soared to 10 percent and commercial real estate prices plummeted 35 percent.

The second phase of the results followed qualitative and quantitative examinations of large banks.

The industry’s strong performance in the tests likely will embolden the bank lobby to push for an easing of regulations imposed in the wake of the crisis, an initiative that has strong support from US President Donald Trump and his administration.

However, the Fed said Capital One Financial Corp still “exhibited material weaknesses in its capital planning practices,” despite getting approval for its payouts.

It cited concerns about planning in “one of its most material businesses” and issues with internal controls.

A senior Fed official said it could block Capital One from making capital distributions down the road if it does not meet expectations.

Capital One held its dividend at US$0.40 a share and said its board authorized it to spend up to US$1.9 billion on share buybacks, a relatively modest sum compared with other banks.

“We will resubmit our capital plan and are fully committed to addressing the Federal Reserve’s concerns with our capital planning process in a timely manner,” Capital One chief executive Richard Fairbank said.

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