U.S. bank stocks surge as Fed unlocks ‘treasure chest’

The biggest U.S. banks added more than US$ 40 billion in market value after the Federal Reserve’s annual stress tests opened the way to surprisingly big increases in dividends and share buybacks. Wells Fargo & Co. jumped 4.1 per cent while Citigroup surged as much as 3.8 per cent in New York trading Thursday. Regions Financial Corp. and KeyCorp also climbed as the KBW Bank Index rose the most since April. “The results came in well ahead of both our estimates and consensus estimates as the Fed allowed for a large step-up” in payouts to share- holders, Scott Valentin at Compass Point Research & Trading said in a note titled “Fed Unlocks Treasure Chest of Capital Return.”

JPMorgan Chase & Co., Citigroup and Bank of

America unveiled plans on Wednesday to boost payouts more than analysts projected, after every lender passed the Fed tests for the first time since the central bank began the reviews in the wake of the 2008 financial crisis. Capital One Financial Corp. slipped 0.7 per cent after it was the lone bank to stumble through the exam, garnering conditional ap- proval to make payouts while it fixes “material weaknesses” in planning. The company reduced its buyback program for the next four quarters 30 per cent compared to the previous year’s total.

“The sun is setting on the post- crisis balance sheet rehab,” Pri de Silva at CreditSights Inc. said in a note. “These massive payouts and an improved earnings outlook reflecting higher rates should alleviate calls for breaking up the banks.”

The Fed’s projections also show regulators may have more leeway to ease rules after years of forcing firms to curtail risk- taking and beef up internal controls — demands that eroded revenue and fuelled cost increases.

The industry is counting on President Donald Trump to soften that oversight by appointing more businessfriendly board members to the Fed, shifting the balance of power from regulators to shareholders.

This month, Treasury Secretary Steven Mnuchin recommended that stress tests be performed every other year and that banks maintaining a sufficiently high level of capital be exempt from exams.

JPMorgan, the nation’s largest lender, said it’s boosting its quarterly dividend 12 per cent and may increase share repurchases to US$ 19.4 billion over the next 12 months — roughly 90 per cent more than in the prior year. Citigroup plans to double its dividend and may purchase up to US$ 15.6 billion. Bank of America hiked its dividend 60 per cent and will buy back up to US$12 billion.

Those three banks along with Wells Fargo and Morgan Stanley may collectively buy as much as US$64 billion in stock.