Updated with stock price action

NEW YORK ( TheStreet) -- A recurrent theme among banks is the Federal Reserve stress tests and plans to return capital to shareholders in 2012.

Almost all banks declared confidently at a recent Goldman Sachs Financial Services Conference in New York that they will pass the stress tests, and many reiterated their intention to increase dividends and buybacks to shareholders as a reward for having suffered through a terrible year for bank stocks in 2011. .

Still, some analysts remain concerned that the Fed would rein in the ability of banks to increase dividends substantially as the regulator would like the banks to maintain additional buffers against an uncertain economic environment.

Analysts at KBW expect the pace of capital deployment to slow in 2012. "In our view, large-cap banks may want to increase dividends to a higher level but it may be difficult due to Basel III requirements and Federal Reserve stress tests," they wrote in a note last week. "While banks may not necessarily cut dividends, we believe that higher hurdles set by the Fed for capital deployment may make it less compelling to own the stock of financial companies due to uncertain capital deployment over a multi-year period."

KBW expects banks that are not being stress tested- that is those with total assets less than $50 billion- to be able to raise dividend payouts with fewer restrictions.

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Goldman Sachs analysts on the other hand are more bullish. Even with capital continuing to build, the analysts expect banks in a position to return capital to reach a payout ratio of 50% in 2012. They expect majority of the increased capital returns to come in the form of buybacks, with dividend increases expected to be more nominal. American Express ( AXP), Wells Fargo ( WFC), State Street ( STT) and U.S. Bancorp ( USB) are best positioned, according to Goldman.

Among the big four banks, investors also have great expectations from Citigroup ( C) which has been promising to boost dividends starting in 2012. Buckingham Research analyst Jim Mitchell expects the bank's dividend to rocket 15-fold in 2012 .

Here's a roundup of some of the comments from the biggest banks at the conference last week.

JPMorgan Chase

JPMorgan Chase ( JPM)CEO Jamie Dimon said he expects most banks to pass the test. He said the tests might show that banks actually have "too much capital" if they pass such unduly harsh scenarios very easily. "I think it will in some ways prove the stability of the system. Definitively - like we won't have to talk about it anymore. I think that's a good thing," he said.

As to how the stress test might affect the bank's dividend plans, Dimon said JPMorgan is targeting a 9% plus capital level under Basel III by the end of 2012 and expects to still be able to buyback shares to the same extent it did in 2011 roughly $8 billion and maybe afford a modest dividend increase. But the bank is eager to achieve international capital regulatory standards quickly. "I think its going to be a race to the top," he said.

He, however, did indicate that the bank still had about $950 million that was previously authorized for dividends that it could now use to make further buybacks.

Bank of America

CEO Brian Moynihan told investors that it was probably too early to tell how Bank of America ( BAC) would perform under the bank stress tests but he highlighted the fact that the bank's current portfolio was of higher quality than what it had in 2008. Home equity loans have declined $20 billion and the credit card book is of a better vintage.

He added that Bank of America's capital levels at the end of the third quarter were far above regulatory minimums and it continues to make progress in building capital, with latest actions including the sale of its stake in China Construction Bank and its preferred debt for common equity exchange further bolstering capital.

On dividend however, the CEO was reluctant to make any promises, having learned his lesson from being rejected by the Fed the last time. "Our dividend's where it is. I've said we are not going to ask for dividend until I'm sure we've got the capital picture solved, along any dimension, and that we can get approval," he told analysts in a question and answer session.

Citigroup

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Citigroup ( C) is set to generate significant amount of excess capital starting in 2012, CEO Vikram Pandit said in the conference. Besides strong earnings performance from its core operations, Citigroup is likely to generate $65 billion from the eventual winding down of Citi Holdings and the monetization of deferred tax assets.

"It shouldn't come as a surprise that I'm excited about the prospects of delivering this excess capital back to our shareholders over time," Pandit said in his presentation.

The bank has said it expects to achieve a target of 8% to 9% in Basel 3 Tier 1 Capital in 2012 and is hoping to increase its dividend in 2012 and begin returning substantially more in 2013.

Wells Fargo

Wells Fargo ( WFC) chief John Stumpf said he is not concerned about the stress test. " We believe that Wells Fargo is well positioned and we are even stronger today than we were a year ago. We've had record earnings for sixth consecutive quarters. Our capital levels have never been higher and we have many opportunities to continue to benefit from the Wachovia merger, now that the integration is largely complete."

He also said the bank wants to return more capital to shareholders, even as they look to build more capital. "Our shareholders have been very patient with us. So I don't think it's one or the other. I think it's accomplishing both, and I think we can do both, get more capital returned, get to whatever that number is sooner and I think strong capital positions give you flexibility," he said.

He didn't say how much more dividend the bank will pay. "I think more means more," he told an analyst when pushed to be more specific.

U.S. Bancorp

U.S. Bancorp ( USB) chief Richard Davis said the bank is hoping to return between 60% and 80% of profits to shareholders in 2012.

The bank may choose to limit its dividend payout ratio to 30%, as the Fed's stress tests limits dividend payout to that level. It will however, use repurchases to get closer to its 60% to 80% target.

Davis said he is leaving plans open-ended because "you can stop a buyback at any moment but a dividend is much harder to retreat." Unlike the big four, U.S. Bancorp also seemed more open to the idea of acquisitions. With the bank escaping being labeled as a "Globally Systemic Financial Institution"- better known as Too -Big- to -Fail, the bank has more flexibility to grow its balance sheet.

Bank stocks were falling on Monday as investors remained skeptical over the Friday agreement by most European Union members to move towards stricter budget rules. Shares of Bank of America and Citigroup were falling 4.5% and 5.2% respectively, while JPMorgan and Wells Fargo saw their shares slide by 3.4% and 2.3% respectively.

--Written by Shanthi Bharatwaj in New York

>To contact the writer of this article, click here: Shanthi Bharatwaj.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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