WASHINGTON

6 largest lenders likely to return almost $41 billion to investors in next 12 months

The six largest US banks may return almost $41 billion 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 Inc and Bank of America Corp will buy back $26.4 billion in shares, up from $23.8 billion, according to the average estimate of three Wall Street analysts. An additional $14.5 billion will be paid out in dividends, $3.4 billion more than 2012, separate estimates show. The payouts are contingent on approval by the Federal Reserve.

Lenders including Citigroup Inc. and Bank of America Corp. will buy back $ 26.4 billion in shares, up from $ 23.8 billion, according to the average estimate of three Wall Street analysts.

Citigroup Inc, the third-biggest US bank, will raise its quarterly dividend to 8 cents a share in May, analysts estimate. The central bank tomorrow will release preliminary results of its stress tests on the 18 largest U.S. 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 Plc, said in an interview.

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 $45 billion 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 share-repurchase average was compiled from estimates provided by analysts at Credit Suisse Group AG (CSGN), Barclays and Morgan Stanley (MS) and includes projected buybacks through the March 2014 stress tests. The dividend increases were based on analysts’ estimates compiled by Bloomberg for the next four payouts and the number of shares outstanding for each of the banks at the end of December. The higher projected payouts fall short of what they were before the crisis. The six biggest banks gave back $66.4 billion in 2007, before subprime-mortgage losses led to the collapse of Lehman Brothers Holdings Inc., according to data compiled by Bloomberg. Lenders paid $32.4 billion in dividends and repurchased $33.9 billion of shares that year, the data show.

The Fed began annual stress tests in 2009 to evaluate the health of the U.S. banking system. In 2011, the central bank adopted an approach known as Comprehensive Capital Analysis and Review, or CCAR, which focused on lenders’ capital plans, assessing how dividend or share-buyback increases would affect them. This year it’s also conducting a separate review, as mandated by the 2010 Dodd-Frank Act.

Under both tests, regulators subject banks’ portfolios, capital levels and profit-making potential to conditions that simulate an economic recession or financial shock. The 2013 stress tests involve two scenarios. In one, the economy contracts for six quarters and inflation and interest rates rise sharply; in the other, unemployment climbs above 12 percent and stocks fall 52 percent. Last year’s test assumed an unemployment rate of 13 percent.