Shares in the S&P 500 Bank Index rose 2.6 per cent on Friday after the U.S. Federal Reserve approved the capital plans of the biggest U.S. banks, giving them a clean bill of health.
M&T Bank Corp. was the only one of the index’s stocks down slightly as at least one analyst said its payout plan was lighter than expected. JPMorgan Chase & Co. and Bank of America were the group’s biggest boosts with gains over 3 per cent, followed by advances of over 2 per cent for Wells Fargo & Co and Citigroup.
All 18 banks undergoing the Fed’s annual stress test were given the all-clear, although the central bank placed conditions on Credit Suisse’s U.S. operations after finding weaknesses in its capital planning processes.
The Fed’s stamp of approval for Deutsche Bank was a major boost since it flunked the test in 2015, 2016 and 2018.
JPMorgan and Capital One passed the test though both had to pare back their capital plans, after initial plans showed that each would see capital levels drop below regulatory minimums under a severe economic downturn, according to a senior Fed official.
Jefferies analyst Ken Usdin estimated that the average bank would be returning about 10.5 per cent of its market capitalization in dividends and buybacks from the third quarter of 2019 to the second quarter of 2020. He said total payout ratios for universals averages at about 125 per cent of net income estimates.
Bank of America, Bank of New York Mellon, JPMorgan and Northern Trust Corp. had notably larger payouts than Mr. Usdin’s estimates, while Capital One, Discover Financial Services and M&T were lightest compared with his estimates.
Goldman Sachs, Morgan Stanley and State Street Corp., which received conditional passes last year, passed without conditions this year. Goldman Sachs, which is not in the S&P Bank Index was up more than 3 per cent.