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Still Too Risky For Banks to Raise Dividends and Buybacks Regulators Deem
In a move that will delay the return of capital to shareholders for months, U.S. regulatory agencies have told banks to delay the increase of dividends or buy back share until such a time when the financial industry stabilizes, according to a report in the Financial Times.
Banks such as JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs (NYSE: GS) are being pressured by investors that say the financial institutions have been winners in the recession. The investors believe that the banks should consider raising dividends or initiate buy backs due to strong balance sheets and profitable businesses.
Banks that have stayed healthy during the recession have talked about returning cash to investors after they took actions to conserve assets during the downturn, but have said that there is no rush to do so.
"Regulators are gun-shy at this stage, partly because they fear that giving the green light to healthier banks to return cash to investors will prompt demands from more troubled institutions to do the same," one senior bank executive said when asked about the situation by the Financial Times.
In response to the recession, JPMorgan cut its dividend by 87 percent in December 2008, and Goldman halted its buyback program in July 2008.
Regulators sent a letter to financial groups in December to remind them that they will need to meet certain criteria before being able to release funds back to shareholders. The criteria includes stress testing and being able to prove sustainable profitability.
JPMorgan CEO, Jamie Dimon said last month that he would like to increase the bank's dividend soon, but the institution will wait until the U.S. job market shows stability and starts to create jobs on a regular basis.
"We have tons of capital and tons of liquidity," Dimon said. "If we are lucky (the increase) will happen sometime this year."
The dividend was cut to 5 cents from 38 cents by JPMorgan, while the bank has said it would like to raise its payout to 35 cents per quarter.
Other banks:
US Bancorp (NYSE: USB)
Wells Fargo (NYSE: WFC)
Bank of America (NYSE: BAC)
Morgan Stanley (NYSE: MS)
PNC (NYSE: PNC)
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