Behold! The Fed Raises the Curtain on Major Bank Dividends This Week

A mere four initials will be the talk of the banking sector over the coming days: CCAR. That stands for Comprehensive Capital Analysis and Review, and it'll be released Wednesday afternoon as a part of the Federal Reserve's stress tests for the nation's major financials. Arguably, it's the critical component, as it contains the Fed's approvals (or denials) of the banks' capital allocation plans. 

And by capital allocation plans, we're basically talking dividends (share buybacks, after all, aren't as exciting). As all but one of the 30 tested financials passed the tests, according to the Fed's first set of results last week, at least a few should get the nod for hikes in their distributions. This bodes well for the sector's stocks on an overall basis. Among the big four lenders, Wells Fargo (NYSE: WFC  ) -- which, by the way, made its intentions very plain for a both a dividend and a share buyback raise  -- looks like it'll have the best chance of getting proposed increases green-lighted.

The prospects for other majors are cloudier, in spite of some good recent fundamentals. Both Citigroup (NYSE: C  ) and Bank of America (NYSE: BAC  ) conducted their own stress tests, estimating they would have significantly higher capital under the worst-case scenario than that projected by the Fed analysts. The regulator might read this as starry-eyed optimism, leading it to put the kibosh on any requested dividend or share buyback increase.   

On the subject of payouts and stress-tested banks, US Bancorp (NYSE: USB  ) is going ex-dividend on Thursday, the day after the CCAR is released. That quarterly distribution is $0.23 per share, for a yield of just over 2.1% on the company's most recent closing stock price.  By that day, of course, we'll know whether the bank has requested a raise in that amount, and whether the Fed assented to it. 

JPMorgan Chase (NYSE: JPM  ) will be a busy bank this week. In addition to adjusting to fallout from the CCAR, the company will reach (not too deeply) into its coffers to pay its latest legal settlement, a $218 million arrangement to resolve a class action suit over its alleged role in the activities of disgraced financier Bernie Madoff.

The firm will also probably speed-dial a headhunter or several, following media reports that its longtime chief executive for China investment banking, the wonderfully named Fang Fang, has decided to leave the company. Investment banking is a big component of the firm's operations and, needless to say, China is an enormous market, so this will surely have some impact. Morgan should try its best to find a qualified and well-connected replacement before the body gets too cold.

Outside of those developments, the market will also pay attention to the macro economy, which always affects the performance of the finance sector. Among the important numbers coming down the pike this week are new home sales for February (Tuesday), and the latest revision of Q4 GDP (Thursday).

Those figures are sandwiched in between Wednesday's CCAR release, which is almost certain to be the financial sector event of the week. Watch those dividends and share buybacks, folks, we're going to see some adjustments... hopefully of the upward variety.

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  • Report this Comment On March 25, 2014, at 4:26 AM, Interventizio wrote:

    Wfc is 17% of my portfolio. I hope it'll be 20+ soon, thanks to capital appreciation from good news.

  • Report this Comment On March 25, 2014, at 3:19 PM, TMFVolkman wrote:

    Interventizio, I think among the big banks, WFC stands the best chance of hiking their payout.

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Eric Volkman

Eric has been writing about stocks and finance since the mid-1990s, when he lived in Prague, Czech Republic. Over the course of a varied career, he has also been a radio newscaster, an investment banker, and a bass player in a selection of rock and roll bands. A native New Yorker, he currently lives in Los Angeles.

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