This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Second Chances Help American Express Boost Dividend

NEW YORK ( TheStreet) - American Express (AXP - Get Report) passed the Federal Reserve's 'stress test' for a second time on Thursday, winning clearance to return billions of dollars to investors through a dividend increase and share buyback valued at about $3.2 billion.

American Express benefited from the Fed's decision to methodology used to determine whether 18 of the country's largest lenders are sufficiently capitalized. If the Fed hadn't taken such actions, American Express risked having to wait to return capital to investors until later in the year.

According to the Fed, American Express may have had its plan rejected had the credit card lender not been able to adjust the amount of money it aimed to divert to shareholders.

Following a give-and-take between the company and the regulator, America Express will increase its quarterly dividend to 23 cents per share and repurchase $3.2 billion in shares for the last three quarters of 2013, and spend another $1 billion in the first quarter of 2014.

American Express' adjusted plan will put the lender at a stressed capital ratio of 6.42%, according to the Fed's calculations, far above the regulator's minimum 5% threshold.

The company's initial plan would have put the firm at a 4.97% capital ratio, tantamount to a failing grade.

A press release issued by American Express indicates the firm's initial capital plan submitted in January included a quarterly dividend of 23 cents and a share repurchase program of up to $4.7 billion for the last three quarters of 2013 and up to $1 billion in the first quarter of 2014.

Since that plan would have put American Express below the Fed's threshold, the credit card lender was forced to temper its share buyback aspirations.

The ability to revise its capital plan and get a second chance at returning capital to investors contrasts to last year's tests when the Fed failed Citigroup (C - Get Report) outright for an overaggressive share buyback plan.

The difference in American Express's initial capital plan versus the one approved by the Fed hinged on just $1.5 billion in share buybacks.

While American Express's second chance at tests doesn't represent any special treatment - all other lenders also had the ability to resubmit plans were the Fed to have different calculations - it also indicates just how scarce capital might be for lenders in the Fed's stressed scenario.

By taking repurchases from $4.7 billion to $3.2 billion, American Express was able to improve its stressed capital ratio from 4.97% to 6.42%.

Marina Norville, an American Express spokesperson declined to comment beyond the firms press release announcing a dividend increase and share buyback.

American Express shares rose 17 cents in after-hours trading, adding to year-to-date gains in excess of 13%.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AXP $65.68 0.38%
BBT $35.41 0.08%
C $46.68 0.86%
AAPL $93.64 -0.11%
FB $118.57 0.84%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs