Citi (C), BofA (BAC) May Scrap Dividend Plans on Tougher Fed Tests
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Investors hoping for a robust dividend raise from some of the bigger U.S. banking names may be in for a rude awakening.
According to reports Wednesday, Citi (NYSE: C) and Bank of America (NYSE: BAC) may have to halt ambitious dividend increase plans should federal regulators have anything to say about it.
...And they usually do.
The Fed introduced a new, tougher capital test for the largest 31 U.S. banks late Tuesday. The test measures banks' fortitude should trading partners default on debt (*cough, MF Global*) or the U.S. economy turn sour again. Further, the test came about to determine banks' capital position should a "severe" U.S. recession occur: 13 percent unemployment and an 8 percent decline in GDP.
Portfolio operations of the six largest U.S. financial institutions -- Goldman (NYSE: GS), BofA, JPMorgan (NYSE: JPM), Wells Fargo (NYSE: WFC), Morgan Stanley (NYSE: MS), and Citi -- are also being tested, should a scenario like what occurred in the second half of 2008 repeat itself.
Based on the tests, some speculate that it would be, at minimum, challenging for banks to buy back shares, much less increase payouts to shareholders. Dividends might even need to be cut, should capital requirements fail to be met.
Citi has been promising a more substantial payout sometime in 2012 since late 2010, and Bloomberg notes a spokesperson from the bank said its plans "haven't changed" yet. The spokesperson also said, depending on economic conditions, payouts may increase in 2013 and beyond.
As for BofA, CEO Brian Moynihan said in August the bank would move to increase the payout when it was "darn well sure" the move would be approved, and not one minute before.
Well, Moynihan, now that you know what your bank needs to do, the balls in your court.
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According to reports Wednesday, Citi (NYSE: C) and Bank of America (NYSE: BAC) may have to halt ambitious dividend increase plans should federal regulators have anything to say about it.
...And they usually do.
The Fed introduced a new, tougher capital test for the largest 31 U.S. banks late Tuesday. The test measures banks' fortitude should trading partners default on debt (*cough, MF Global*) or the U.S. economy turn sour again. Further, the test came about to determine banks' capital position should a "severe" U.S. recession occur: 13 percent unemployment and an 8 percent decline in GDP.
Portfolio operations of the six largest U.S. financial institutions -- Goldman (NYSE: GS), BofA, JPMorgan (NYSE: JPM), Wells Fargo (NYSE: WFC), Morgan Stanley (NYSE: MS), and Citi -- are also being tested, should a scenario like what occurred in the second half of 2008 repeat itself.
Based on the tests, some speculate that it would be, at minimum, challenging for banks to buy back shares, much less increase payouts to shareholders. Dividends might even need to be cut, should capital requirements fail to be met.
Citi has been promising a more substantial payout sometime in 2012 since late 2010, and Bloomberg notes a spokesperson from the bank said its plans "haven't changed" yet. The spokesperson also said, depending on economic conditions, payouts may increase in 2013 and beyond.
As for BofA, CEO Brian Moynihan said in August the bank would move to increase the payout when it was "darn well sure" the move would be approved, and not one minute before.
Well, Moynihan, now that you know what your bank needs to do, the balls in your court.
Join StreetInsider.com FREE and get immediately alerted when news breaks on your stocks and other market items - JOIN NOW
*NEW - Download StreetInsider's FREE iPhone and iPad App - Click Here
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