Big banks tally the gains from their stress-test successes

At Wells Fargo and Goldman Sachs, the good news stemming from last week's stress-test results cut across multiple fronts.

Wells and Goldman were among the large banks that announced dividend increases on Tuesday in response to more favorable results in the Federal Reserve's annual tests. But the two megabanks also said that their current stress capital buffers, which the Fed calculated last summer, will be revised downward.

The banks' decisions to return more capital to shareholders — and in some cases, their success in persuading the regulators to revisit earlier calculations — were emblematic of the progress that the industry has made in reducing the impact of the stress tests.

"The large banks' capital levels remain strong, and investors should continue to expect that any excess capital that cannot be redeployed into growing the companies' core businesses either organically or through acquisition will eventually be returned to shareholders," RBC Capital Markets analyst Gerard Cassidy wrote in a note Tuesday.

He predicted that more robust stock buyback plans will be announced, and existing buyback plans will be used more aggressively, once the Fed's Basel III endgame capital proposal is finalized.

Meanwhile, statements by top banking executives on Tuesday made clear that their push for stress-test reform will continue.

Goldman Chairman and CEO David Solomon said in a written statement that the Fed has expressed its aim to make the stress tests fairer and more transparent. "A more balanced approach to the tests would allow Goldman Sachs to continue to serve our clients' needs, invest in our world-class businesses, and support economic growth. We look forward to continued progress," he said.

Similarly, JPMorganChase Chairman and CEO Jamie Dimon used his own bank's announcement of a dividend increase and a new share buyback plan as an opportunity to call for changes in how the Fed calculates the large banks' so-called stress capital buffers.

"We look forward to future proposals from the Federal Reserve on stress test models and scenarios that will increase transparency and address longstanding issues with the current SCB framework," Dimon said in a statement.

The banks' announcements on Tuesday came four days after the Fed said the 22 banks it examined this year have plenty of excess capital to weather an economic downturn.

This year's test wasn't as severe as last year's, and banks' fundamental earnings have improved over the past 12 months. Still, the results exceeded even the optimistic expectations of analysts, as the banks turned out their strongest performances since the Fed's stress protocols were rolled out in 2018.

The Fed found that in its worst-case scenario, banks' aggregate common equity Tier 1 capital ratio would decline by up to 1.8%, compared with up to 2.8% last year.

What follows is a look at the announcements Tuesday from nine of the stress-tested banks, eight of which said they plan to increase their dividends.

JPMorganChase

The nation's largest bank said that, under the current stress test framework, its required common equity tier 1 capital ratio decreased from 12.3% to 11.5%, as its stress capital buffer will drop to the regulatory minimum of 2.5%.

The $4 trillion-asset company announced plans to roll out a new $50 billion common share repurchase plan, though it didn't offer a timeline for when it will redistribute that capital. JPMorgan also increased its quarterly common stock dividend to $1.50 per share, up from $1.40, for the third quarter.

JPMorgan has built up tens of billions of dollars in capital cushion, but began reducing its common equity tier 1 ratio earlier this year for the first time in years. As of the first quarter, its CET1 ratio was more than 15%.

Wells Fargo

Wells said the Fed set its stress capital buffer for the year beginning Oct. 1 at 2.5%, well below 2024's 3.8% level.

In addition, regulators revised the 2024 number down to 3.7% due to what Wells called "the correction of modest errors" in the Fed's "loss projections related to corporate and first lien mortgage loans."

On the heels of those announcements, Wells disclosed that it plans to increase its third-quarter dividend by 12.5% to 45 cents per share.

Goldman Sachs

Goldman reported one of the largest stress capital buffer decreases across the banks tested this year. The Wall Street bank said that its SCB would fall to 3.4%, a decrease of nearly three percentage points from last year.

Goldman also said that its current SCB, assessed by the Fed after the 2024 stress tests, has been reduced from 6.2% to 6.1%. Last year, Goldman reported one of the larger jumps in its stress capital buffer.

When the new SCB takes effect in the fall, the bank's Common Equity Tier 1 ratio requirement will be 10.9%, down from its current 13.6% minimum. As of the first quarter, that ratio was about 15% at Goldman.

The bank upped its dividend by 33% from $3.00 to $4.00 per share.

Bank of America

After this year's stress tests, BofA's stress capital buffer is expected to drop to 2.5% — down from 3.2% last year. Beginning in the third quarter of 2025, the Charlotte, North Carolina-based said it plans to increase its dividend by 8% to $0.28 per share.

U.S. Bancorp

U.S. Bancorp moved to increase its dividend by 4% to 52 cents per share after disclosing that the Fed set its 2025 stress capital buffer at 2.6%.

The 2025 result represents a drop from the Minneapolis company's current buffer of 3.1%.

"The results of this year's stress test demonstrate that we are well-capitalized, have a healthy balance sheet and remain prepared to manage potential industry stress and withstand a severe economic downturn," CEO Gunjan Kedia said in a press release.

Truist Financial

Truist said it will maintain its current dividend and share repurchase plans after the Fed set its preliminary stress capital buffer at 2.5%. The Fed had also set Truist's 2024 buffer at 2.8%.

The buffer, when added to the Basel III minimum common equity tier 1 ratio of 4.5%, results in a minimum CET1 ratio of 7%, well below Truist's current ratio of 11.3%.

"Truist's 2025 annual stress test results again demonstrate the benefits of our diverse business mix and prudent and disciplined risk management culture," Chairman and CEO Bill Rogers said in a press release.

PNC Financial

PNC appeared to be interpreting the Federal Reserve's decision to hold its stress capital buffer steady at 2.5% as a vote of confidence. The Pittsburgh-based regional bank announced that it would go forward with plans to increase its dividend by 6% to $1.70 in the third quarter. PNC is also maintaining its current share repurchase plan.

BNY

BNY plans to increase its quarterly dividend as its stress capital buffer remains flat.

The New York-based bank plans to raise its dividend by 13%, bringing it to $0.53 per share. The increase will take effect next quarter, pending approval by the company's board of directors.

CEO Robin Vince said his bank's test results proved its "ability to support clients through extreme economic stress scenarios."

State Street

State Street expects to give its shareholders an 11% boost to their dividends, raising the payout to $0.84 per share.

State Street also said that its stress capital buffer will remain at 2.5%, the lowest level allowable. The Boston-based bank said its calculated buffer this year was "well below the 2.5% minimum."

"The results of the Federal Reserve's stress test reaffirm State Street's robust financial strength and our ability to support clients through a range of severely adverse economic conditions," CEO Ron O'Hanley said in a statement.