- 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%
NEW YORK ( TheStreet) -- The nation's largest banks will once again sail through the capital adequacy component of the Federal Reserve's 2014 stress tests, but the regulator is introducing plenty of additional complications for the next round of tests. Over the past four years, the annual Federal Reserve stress tests and capital plan review for the nation's largest banks have been, for the most part, a time of celebration for investors. It's a two-part process. First, the Fed applies a "severely adverse" economic scenario to the banks' third-quarter financials, to gauge the banks' ability to withstand a two-year crisis while remaining well-capitalized with minimum Tier 1 common equity ratios of 5.0%. The severely adverse scenario for the 2014 stress tests assumes an increase in the U.S. unemployment of four percentage points, with the unemployment rate peaking at 11.25% in mid-2015. The scenario also includes a decline in real U.S. GDP of nearly 4.75% through the end of 2014, a 50% decline in equity prices and a 25% decline in home prices. The severely adverse scenario also has international components, including recessions Europe and Japan, and slowing growth in Asia. The second part of the process is the Comprehensive Capital Analysis and Review (CCAR) which repeats the stress tests while incorporating the banks' plans to deploy capital through dividends, share buybacks or acquisitions. There are two new twists this year. For starters, stress tests and CCAR for banks considered global systemically important financial institutions (G-SIFIs) will incorporate a counterparty default scenario that "involves the instantaneous and unexpected default of the bank holding company's counterparty with the largest net stressed losses." In other words, the stress tests will factor in the instant default of a bank's largest counterparty for trading of swaps and other derivatives. U.S. G-SIFIs include JPMorgan Chase ( JPM), Bank of America ( BAC), Citigroup ( C), Wells Fargo ( WFC), Goldman Sachs ( GS), Morgan Stanley ( MS), Bank of New York Mellon ( BK) and SunTrust ( STI). The second new twist is the "Global Market Shock" component of the severely adverse economic scenario, which the Federal Reserve describes as "one-time, hypothetical shocks to a large set of risk factors."
"Generally, these shocks involve large and sudden changes in asset prices, rates, and spreads, reflecting general market dislocation and heightened uncertainty," the Fed said on Friday. The regulator will not announce the parameters of the global market shock component of the stress tests until Nov. 15. This component of the tests and CCAR will apply to the "big six" U.S. banks, including JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. Despite the added complications, KBW analyst Frederick Cannon expects this year's CCAR process -- the critical one for investors, since it determines how much gravy they will get, through dividend increases and share buybacks through the first quarter of 2015 -- "to be somewhat smoother for past CCAR filers." The Federal Reserve in March rejected BB&T's ( BBT) capital plan on qualitative grounds, while granting "conditional" approval to the capital return plans of JPMorgan Chase and Goldman Sachs. All three companies later submitted revised plans that were approved by the Fed, with BB&T of Winston-Salem, N.C., making no increase to its dividend and planning no share buybacks through the first quarter of 2014. Cannon in a client note on Sunday wrote that "For new CCAR filers, we expect the waters could get a bit choppy as banks navigate around the Fed's and investors' expectations." The new group of banks being subjected to the Fed's stress tests and CCAR this year includes Comerica ( CMA) of Dallas, Huntington Bancshares ( HBAN) of Columbus, Ohio, and card lender Discover Financial Services ( DFS). Of course there's no way of predicting if any of the banks will see their capital plans rejected by the Fed, and we won't know until Nov. 15 just how brutal the global market shark scenario will be. As part of the process, the banks subjected to CCAR are allowed to make a one-time reduction in their capital deployment plans, based on feedback from examiners during the process. Jefferies analyst Ken Usdin expects the banks to "perform well from a qualitative perspective," because starting points for the Fed's economic scenarios are better, as U.S. home and equity prices have increased over the past year, while banks' balance sheets are "cleaner," with lower problem loans. "As a result, we believe any slip-ups will likely be due to qualitative factors," he wrote in a note to clients on Sunday. Usdin added that he expects capital payouts "to grow modestly for most," of the banks subject to CCAR.
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: