Caution the name of the game for US banks

Not the capital return bonanza from America’s biggest banks that many analysts had expected after they passed the US Federal Reserve’s 2022 stress tests last week.

In fact a sense of caution dominated the decisions of many of the banks that revealed their latest capital management plans on Monday after the market had closed for the day.

It was more a signal from these financial giants that the outlook for the economy is too clouded at the moment by rising inflation and interest rates and capital needs to be retained and expanded rather than paid out.

Instead of massive share buybacks and/or dividends, most banks opted for dividend increases except two – and they tell the story – JPMorgan Chase, the country’s biggest and its rival, Citigroup.

JPMorgan left its quarterly payout steady at $US1 a share and Citi’s was unchanged at 55 cents a share.

Both banks explained that increasingly stringent capital requirements forced them to keep their dividend unchanged.

Both JPMorgan and Citi raised their stress capital buffers, a sign they feel they need more capital for whatever lies ahead for the US economy.

They were decisions that will feed some of the market gloom about the economic outlook for the US.

The two banks would not have held their payouts and promised to boost capital without a nudge from the regulators.

The stress test set each bank’s “stress capital buffer” – an extra capital cushion on top of the regulatory minimum – the size of which is determined by each bank’s hypothetical losses under the test.

JPMorgan said in its statement on Monday that “higher future capital requirements” were the reason it froze the dividend at $US1 a share.

“We will continue to use our capital to invest in and grow our market-leading businesses, pay a sustainable dividend and we will retain capital to fully satisfy our future regulatory requirements,” JPMorgan CEO Jamie Dimon said in the release.

JP Morgan shares fell 0.8% in regular trading but edged back up 0.2% after the dividend news was released.

Business media reports said that when asked about any plans for a buyback, a JPMorgan spokesman noted the $US30 billion buyback that the bank started May 1.

Many analysts had expected a new buyback plan to be approved to either boost the May one, or follow on when that plan expires in a year’s time.

For the number 2 bank, Bank of America no such concerns as it raised its quarterly dividend by 5% to 22 US cents a share – a move that will be welcomed by its biggest shareholder, Warren Buffett’s Berkshire Hathaway.

Morgan Stanley also raised its quarterly payout to shareholders by 11% to 77.5 US cents a share, while the smaller Bank of New York Mellon announced a 9% lift to 37 US cents a share.

Morgan Stanley also set up a $US20 billion buyback starting in the next quarter.

Wells Fargo will raise quarterly shareholder dividends 20% to 30 US cents a share from next month And it also revealed plans to examine the possibility of a share buyback over the next four quarters.

Goldman Sachs had one of the larger dividend increases, a 25% lift to $US2.50 per share.

Morgan Stanley shares rose 3.3% in afterhours trading and Goldman shares were up around 1.7%.