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2014 Stress Tests Bring New Complications for Big Banks

KBW's analyst team provided capital return and payout ratio estimates for banks subject to CCAR, covering the second quarter of 2014 through the first quarter of 2015. The dividend payout ratio is dividends divided by earnings. The total payout ratio is the sum of dividends paid and dollars used for share repurchases, divided by earnings. Some analysts object to including anything other than dividend payments in payout ratios, but KBW includes share buybacks in their total payout ratios:

Among the 22 publicly traded U.S. banks subject to CCAR, KBW expects only State Street (STT) of Boston to be approved for a combined payout ratio of over 100%. KBW analyst Robert Lee estimates State Street will pay dividends of $460 million and repurchase $2.099 billion worth of common shares for total capital deployment of $2.559 billion from the second quarter of 2014 through the first quarter of 2014. KBW estimates the company will increase its quarterly dividend to 28 cents from 26 cents, and estimates State Street's dividend payout ratio will be 19% and that its total payout ratio will be 106%.

Here are KBW's estimated payouts, following 2014 CCAR, for five of the "big six" U.S. banks (since the firm's coverage of Morgan Stanley is suspended), from the second quarter of 2014 through the first quarter of 2015:
  • JPMorgan Chase: Quarterly dividend increases to 41 cents from 38 cents; total dividends of $6.098 billion and buybacks of $5.085 billion for a dividend payout ratio of 27% and a total payout ratio of 50%
  • Bank of America: Quarterly dividend increases to 5.75 cents from 1 cent; total dividends of $2.600 billion and buybacks of $5.185 billion for a dividend payout ratio of 17% and a total payout ratio of 51%
  • Citigroup: Quarterly dividend increases to 5 cents from 1 cent; total dividends of $594 million and buybacks of $7.686 billion for a dividend payout ratio of 4% and a total payout ratio of 53%
  • Wells Fargo: Quarterly dividend increases to 32 cents from 30 cents; total dividends of $6.817 billion and buybacks of $5.633 billion for a dividend payout ratio of 31% and a total payout ratio of 57%
  • Goldman Sachs: Quarterly dividend increases to 65 cents from 55 cents; total dividends of $1.153 billion and buybacks of $4.614 billion for a dividend payout ratio of 16% and a total payout ratio of 81%

The biggest changes, according to KBW, will be for Citigroup. The company is expected to continue paying modest dividends, but the projected buyback authorization is a very largest increase from the $1.2 billion authorization announced following the 2013 CCAR in March. This underlines Citigroup's ongoing recovery from the doldrums of the 2008 credit crisis.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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