Several central US banks have announced that they will buy billions of dollars of their own shares, with which they reward their shareholders. After a successful stress test by the Federal Reserve, the regulator lifted crisis restrictions on purchasing programs last week.
In addition, restrictions on dividend payments no longer apply.
Morgan Stanley has announced that it will repurchase $12 billion in its own shares over the next 12 months. As fewer pieces remain, they increase in value and can increase earnings per share. The investment bank also decided to double the dividend.
Wells Fargo, a bank that focuses primarily on mortgages and consumers, will buy back $18 billion in its own shares. The dividend will go from 10 cents to 20 cents per share. That’s still significantly lower than Wells Fargo’s previous 51-cent distribution. Still, the bank is also struggling with the aftermath of a scandal in which employees opened new accounts for customers without authorization.
Bank of America already took an advance on the expected easing by the Fed in March and announced a $25 billion share buyback in that month. The dividend will increase by about 17 percent. At investment bank Goldman Sachs, that profit distribution will increase by 60 percent. JPMorgan Chase, the largest bank in the United States, only announced an 11 percent dividend increase.
In 2020, the Fed imposed restrictions on US banks’ compensation to their shareholders. The lenders thus had to maintain sufficient capital to withstand significant shocks. The expected economic impact of the corona pandemic was significant, so there were fears that many loans would never be repaid. The restrictions were initially supposed to last until the end of 2020, but were extended until the end of June.