Monday 23 October 2017

US regulators open door for $41bn payouts from six biggest banks

Dakin Campbell and Hugh Son

THE six largest US banks may return almost $41bn to investors in the next 12 months, the most since 2007, as regulators conclude firms have amassed enough capital to withstand another economic shock.

Lenders including Citigroup and Bank of America will buy back $26.4bn in shares, up from $23.8bn, according to three Wall Street analysts.

An additional $14.5bn will be paid in dividends, $3.4bn more than 2012, separate estimates show. The payouts are contingent on approval by the Federal Reserve.

The central bank will release preliminary results of its stress tests today on the 18 largest US lenders. Next week, it will tell banks whether they can increase their payouts.

"You've gone from a few years ago, when the industry as a whole didn't have enough capital, to the point where in the not- too-distant future, it's going to have too much," Jason Goldberg, a New York-based banking analyst at Barclays. The Fed's endorsement is "a Good Housekeeping seal of approval."

Regulators are allowing payouts to climb to pre-crisis levels even as some analysts and investors question whether capital is high enough to prevent a future taxpayer rescue.

Citigroup and Bank of America, each the recipient of a $45bn bailout that has since been repaid, will have the biggest increase in returns, estimates show. Higher dividends may lift share prices, some of which still trade below book value, and offer a signal of bank-growth outlook.

The higher projected payouts fall short of what they were before the crisis. The six biggest banks gave back $66.4bn in 2007, before subprime-mortgage losses led to the collapse of Lehman. Lenders paid $32.4bn in dividends and repurchased $33.9bn of shares that year, the data show. (Bloomberg)

Irish Independent

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