U.S. lenders increase dividends after passing Fed’s annual stress test

The Wall Street banks, including JPMorgan (NYSE: JPM), Goldman Sachs (NYSE: GS), Bank of American (NYSE: BAC), Morgan Stanley (NYSE: MS), and Wells Fargo (NYSE: WFC), announced an increase in dividends late on Monday after passing the Federal Reserve’s annual stress test last week.

The U.S. Fed had restricted the big banks in terms of the capital they could return to investors amidst the COVID-19 pandemic. The limitation eased last week, leading to investors and analysts forecasting the largest U.S. lenders to announce up to $130 billion (£94 billion) of dividends and share buybacks.

Morgan Stanley and Wells Fargo doubled their dividends

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The widest increase in dividend came from Morgan Stanley, which is now set to double its dividend in the third quarter to 70 cents per share. Analysts had predicted a much narrower hike to 50 cents per share.

In comparison, Bank of America Corp increased its dividend for the third quarter to 21 cents per share or 17%, JPMorgan to $1.00 per share or 11%, and Goldman Sachs to $2.0 per share or 60%.

Wells Fargo also expressed plans of a 100% hike in its Q3 dividend to 20 cents per share. The New York-based financial services firm said it will repurchase $18 billion of its shares over the four quarters starting in September. Other banks also said they would spend more on stock buybacks.  

Citigroup kept its dividend unchanged

Among the big banks, Citigroup (NYSE: C) was the only one that kept its dividend unchanged at 51 cents per share as its required capital ratio jumped from 2.5% to 3.0%. Citi had struggled in the stock market in recent weeks as bank yields continued to decline.

Bank of America and Wells Fargo remained almost flat in after-hours trading on Monday. Morgan Stanley gained 3.7%, and Goldman Sachs was up 0.6%. Citigroup and JPMorgan slid just under 1%.