Oppenheimer analyst Chris Kotowski, in a Feb. 4 report, said he "would counsel investors to have guarded expectations for the two companies' capital returns, as "the industry's recent history suggests that the banks get let out of the penalty box only very slowly." Kotowski estimates that Citigroup will be approved to raise its quarterly dividend to $0.10 and that Bank of America will raise its dividend to $0.03, with neither company being approved for any buybacks through the first quarter of 2014.
Large Regional and Trust Banks
UBS analyst Greg Ketron said in a report on Monday that last year's stress tests "proved to be a positive catalyst for the group, outperforming the S&P 500 by 4% in the days following the capital-plan announcements."
"With the exception of BBT and PNC (due to acquisitions), each bank is coming into this test with higher Tier 1 common ratios vs. last year's test," Ketron wrote. The analyst expects "the trust banks (STT, BK), USB and BBT will be in position to be the most active in share repurchases."
The bulk of the capital returns will be through share buybacks, with dividend payouts being capped at roughly 30% of operating earnings.
For shareholders focused on dividends, Ketron estimates that BB&T (BBT) "will increase its dividend yield to 3.2% assuming about a 30% dividend payout ratio and believe the company could potentially increase its dividend by more." For U.S. Bancorp (USB - Get Report), Ketron estimates "a 2.9% yield at a 30% payout.""These are lower-risk banks with above-average growth rates (we project about 10% EPS growth per year for both banks over the next two years)," Ketron wrote. The analyst added that Wells Fargo (WFC - Get Report) and PNC Financial Services Group (PNC) "could also push dividend yields to around 3%." Here's a quick roundup of UBS's expectations for returns of capital for eight regional and trust banks subject to CCAR:
- Regions Financial (RF - Get Report) of Birmingham, Ala. Last year saw a major transition for Regions, with the sale of its Morgan Keegan brokerage unit, a common equity raise and repayment of government bailout funds. UBS estimates that the company will raise its quarterly dividend to $0.06 from $0.01, and be approved to repurchase $390 million worth of common shares through the first quarter of 2014.
- SunTrust (STI) of Atlanta. The company took strong measures during the third quarter to strengthen its balance sheet, through the sale of its stake in Coca-Cola (KO), bulk loan sales and transfers to held-for-sale. UBS estimates SunTrust will raise its dividend to $0.18 from $0.05, while also being approved for $440 million in share buybacks.
- State Street (STT) of Boston. UBS estimates the company will raise its dividend to $0.2575 from 24 cents, while also being approved for buybacks totaling $1.750 billion.
- U.S. Bancorp of Minneapolis. UBS estimates the company will be approved to raise its dividend to $0.245 from $0.195, while buying back $2.342 billion in shares.
- Wells Fargo. UBS estimates the company will raise its dividend to $0.2775 from $0.25 and be approved for $4.400 billion in share repurchases.
- BB&T of Winston-Salem, N.C. UBS estimates the company will raise its dividend to $0.24 from $0.23, while buying back $750 million worth of shares.
- PNC Financial Services Group of Pittsburgh. UBS estimates that PNC will be approved to raise its dividend to $0.50 from $0.40, with no share buybacks through the first quarter of 2014.
- Bank of New York Mellon (BK). UBS estimates the company will increase its dividend to $0.16 from $0.13, while being approved for share repurchases totaling $1.370 billion.