Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. (GS) Report and Morgan Stanley (MS) - Get Morgan Stanley (MS) Report lead big bank shares higher Tuesday following a host of dividend increases and buyback plans linked to last week's Federal Reserve stress tests that freed-up capital held by the country's largest lenders.
The Fed, which introduced capital restrictions at the height of the coronavirus pandemic last year when banks were suffering billions in losses and many billions more in defaulted loans and credit card payments, said last week that capital buffers currently in place would allow the 23 largest banks to withstand a severe recession without putting shareholders or depositors at risk.
That assessment followed tests of the banks' resiliency to a theoretical spike in unemployment to 10.75%, a 4% slump in domestic GDP and a 55% stock market plunge.
"Over the past year, the Federal Reserve has run three stress tests with several different hypothetical recessions and all have confirmed that the banking system is strongly positioned to support the ongoing recovery," said Vice Chair for Supervision Randy Quarles.
Morgan Stanley, which said it will double its quarterly dividend to 70 cents a share and buy back $12 billion in shares over the next 12 months, was marked 2.9% higher in pre-market trading Tuesday at $90.25 each.
Goldman Sachs, which increased its dividend by 60% to $2 per share, was marked 1.2% higher at 373.22 each while JPMorgan (JPM) - Get JPMorgan Chase & Co. (JPM) Report added 0.2% after unveiling a 10 cents boost to its dividend and confirming plans to buy $30 billion in shares over the next twelve months.
"We are encouraged by the progress in reducing the capital intensity of our business as reflected in the recent stress test results," said Goldman CEO David Solomon. "The planned increase in our dividend demonstrates our confidence in the increasing durability of our franchise revenues and is consistent with our capital management framework of prioritizing investment in our client franchise and returning excess capital to shareholders."
Citigroup (C) - Get Citigroup Inc. Report shares, however, slipped 0.45% lower to $71.20 each after the bank only confirmed a previously-unveiled 51 cents per share dividend while committing to continue with its prior share repurchase plans.
Financial stocks are forecast to post a 27.5% year-on-year gain in collective profits, according to I/B/E/S data from Refinitiv.