Fed Clears Way for Some Big Banks to Boost Dividends

Federal ReserveThe Federal Reserve on Friday cleared the way for some major banks to boost stock dividends, prompting announcements from JPMorgan Chase, Wells Fargo and U.S. Bancorp.

JPMorgan Chase said it is increasing its dividend to 25 cents a share from 5 cents, Wells Fargo hiked its dividend to 12 cents a share from 5 cents and U.S. Bancorp boosted its dividend.

JPMorgan also authorized a $15 billion stock repurchase program with up to $8 billion approved for this year. U.S. Bancorp authorized a buyback program of up to 50 million shares.

Banks can increase dividends if they pass "stress tests" showing that they can weather another recession.

The Fed said it had completed those tests and expects that "some firms" will increase or resume dividend payments, buy back shares or repay government capital. The Fed isn't revealing either the names or number of banks that are expected to do so.

All of the 19 largest banks overseen by the Fed were subject to the examinations. Those banks include Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co.

During the financial crisis banks slashed dividends to build capital cushions to absorb losses. Regulators barred banks from boosting dividends without obtaining approval.

By increasing payments, banks may be able to attract new investors, which should lead to more lending to people and businesses, the Fed said.

The Fed said it is taking a "measured and conservative approach" on banks' dividend requests. The Fed said it expects banks to limit dividends to 30 percent or less of their anticipated earnings.

A green light from the Fed on bigger dividend payments also would signal that banks are in better financial shape.

Federal regulators have been working closely with banks to strengthen operations and get lending flowing more normally again after the worst crisis since the 1930s.

The Fed said Friday that the 19 banks had increased common equity by more than $300 billion from the end of 2008 to the end of 2010. Overall, both the banks' amount and mix of capital have improved since the financial crisis, the Fed concluded in a paper released Friday.

Under the stress tests, banks had to show that they could weather another recession. That was defined as a scenario in which U.S. economic activity would shrink 1.5 percent this year and unemployment would spike to 11 percent. In addition, stocks and home prices would fall sharply.

Across the Atlantic, European regulators pledged to make their banks' stress tests this year more difficult than last year's.

The Fed didn't publicly release the results of this latest round of stress tests. It is keeping the information confidential, which is standard practice in bank exams.

However, the Fed deviated from that practice when it conducted its first stress tests in 2009. The country was reeling from a severe recession and financial crisis. Those results were made public in a move to boost confidence in the fragile U.S. banking system.

At the time, the government had launched a taxpayer-funded bailout of banks. The fear was that by withholding information on banks' health, investors' and the American public's shaky confidence would be further hurt, worsening the recession.

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dw14curtice

Chase Banks mortgage dept. is extremly incompetant

March 18 2011 at 9:57 PM Report abuse +1 rate up rate down Reply
1 reply to dw14curtice's comment
johnskii

Not only the mortgage department. There main goal is trying to "rip off" as much money from the American consumer/taxpayer as they can. Additionally don't look for our Federal government or Obama for help. Obama has ties to J.P. Morgan Chase bank through his "good ole pal" Chase CEO Jamie Dimon. and new Chief of Staff , Bill Daley. Who formally was employed at Chase as a head executive in the lobbying arm of J.P. Morgan Chase before he got his new "ASSSIGNMENT" in the White House.

March 19 2011 at 9:07 AM Report abuse rate up rate down Reply
ultraz2

Stress test for TARP Banks made public? As long as the crooked US CONGRESS and crooked US SENATE continue to lick the anus's of Big Banking CEO'S and their lobbiest --FORGET IT---THE US CONGRESS and US SENATE just doesn't care about middle class America---The USA is alredy knocked down and the verbal count is currently 7 out of the 10 count.STILL BUSINESS AS USUAL ON THE HILL. THE NATIONAL DEBT IS NOT STABLE, IT IS STILL INCREASING. When you see the National debt clock going down --Then and ONLY THEN WILL IT BE EVIDENT THAT the US CONGRESS and US the US SENATE has finally done something other than give taxpayers money to the rich.

March 18 2011 at 9:43 PM Report abuse +1 rate up rate down Reply
scottee

The Fed needs to be audited and ended. but first, they need to put the dollar back on the gold standard and stop the printing and dilution of our dollar....and stop manipulating stock prices, gold prices and interest rates...

March 18 2011 at 8:11 PM Report abuse +3 rate up rate down Reply
charlesnc1

This is great news! Contrary to Frank's opinion many "average consumers" are investors who have saved their money over many years to get some security in dividends. The investors have lost many thousands of dollars along with reduced or eliminated dividends due to no faught of their own. Mismanagement and poor oversite by the FEDS led to the greed that led to the misery going on the last three years. The future is still unclear but millions of dollars were lost never to return. What is the FEDS doing to prevent it from happening again?

March 18 2011 at 12:25 PM Report abuse -1 rate up rate down Reply
jkennedy806

I think the stress tests should be made public, you used my money to bail out the POS SOB's. What a crock of crap, take your fee and shove it.

March 18 2011 at 12:23 PM Report abuse +1 rate up rate down Reply
Frank

Well thats just great.....first there is an article about banks increasing fee's, and I imagine that those that can least afford it will be paying the most. Now we see Banks have the OK's to increase dividends to investors. They should "stress test" the average consumer to to how we are doing.

March 18 2011 at 11:30 AM Report abuse +1 rate up rate down Reply