Fed Hints at Bank Dividend Guidance
NEW YORK (
) -- Bank dividend guidance is getting closer, however institutions will have to meet strict standards in order to raise their dividends, including undergoing a stress test proving they would have sufficient capital for the next two years, one Fed governor says.
According to prepared speech remarks by Federal Reserve Governor Daniel Tarullo, the Fed's "approach to considering such requests will be a conservative one,"
Bloomberg
cited him as saying in the speech.
Tarullo is expected to make a presentation at the George Washington University's law school on Friday, according to
Reuters
.
"We will expect firms to submit convincing capital plans that demonstrate their ability to absorb losses over the next two years under an adverse economic scenario that we will specify, and still remain adequately capitalized," Tarullo is expected to say, according to
Bloomberg
.
The guidance will be in effect for the first quarter of 2011, Tarullo said.
Fed officials in 2009 strongly encouraged banks to reduce their dividends over concerns about capital preservation in light of the soured loans and other toxic assets clogging up banks' balance sheets.
Industry observers say that large banks including
JPMorgan Chase
(JPM) - Get Report
,
U.S. Bancorp
(USB) - Get Report
,
Wells Fargo
(WFC) - Get Report
and
PNC Financial Services
(PNC) - Get Report
are best positioned to raise their dividends once guidance is clear.
Two other large banks,
Bank of America
(BAC) - Get Report
and
Citigroup
(C) - Get Report
, are likely to wait on dividend raises. Citi CEO Vikram Pandit has said that
returning capital to shareholders
is likely a 2012 event.
Banks must also have a "sound estimate" of significant risks that may not be included in the stress testing, such as losses from mortgage putbacks, as well as the ability to conform to Basel III guidelines, he also said, according to
Bloomberg
.
--Written by Laurie Kulikowski in New York.
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Laurie Kulikowski
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