Top US banks hike dividends after clearing Fed's stress test

Major US banks announced plans to increase their third-quarter dividends on Friday, demonstrating their capital strength following the Federal Reserve's annual stress test.

JPMorgan Chase, the largest US lender, raised its dividend to $1.25 per share from $1.15 and authorized $30 billion in new share buybacks, effective July 1.

Bank of America will boost its dividend to 26 cents per share from 24 cents, while Citigroup will increase its dividend to 56 cents from 53 cents, according to separate regulatory filings.

"Banks are going to remain conservative on capital as uncertainty over the Basel proposal remains," said Brian Mulberry, a client portfolio manager at Zacks Investment Management.

Banks have expressed concerns that higher capital requirements proposed under draft rules known as the Basel endgame could hinder their lending capabilities and negatively impact the economy.

Morgan Stanley increased its dividend to 92.5 cents per share from 85 cents.

The dividend hikes follow the banks' successful clearance of the Fed's stress test, which evaluates how much capital banks need to set aside before returning money to shareholders.

Goldman Sachs will raise its dividend to $3 per share from $2.75. The stress test performance dictates the size of the stress capital buffer (SCB), an additional capital cushion required by the Fed to withstand hypothetical economic downturns.

Goldman stated it would engage with regulators to understand the increase in its SCB. CEO David Solomon remarked, "This increase does not seem to reflect the strategic evolution of our business and the continuous progress we’ve made to reduce our stress loss intensity."

Wells Fargo will increase its dividend to 40 cents per share.

This year, 31 large banks were tested, compared with 23 last year. The stress tests confirmed that banks would have sufficient capital to continue lending under various severe scenarios, including a major spike in unemployment, severe market volatility, and declines in residential and commercial mortgage markets.

(With Reuters inputs)