Estimates for banks’ payouts were compiled from seven analysts before last week’s results were announced. Four later revised some projections after the Fed was tougher than anticipated on firms most reliant on investment banking and trading.
While Goldman Sachs’s performance in that round raised concern its cushion of extra capital is too slim to match past payouts, analysts said firms can compensate by delaying share buybacks to later quarters or taking other steps. New York-based Goldman Sachs, for example, could sell preferred stock to maintain its buffer over the minimum ratio, according to analysts at Stifel Financial Corp.’s KBW unit.
Past Fed tests let banks make payouts in the four quarters that followed. This time, the test will determine payouts for five quarters. The analysts’ estimates combine dividends and buybacks for that period. Quarterly averages during that time were compared with those of the past year’s net payouts as calculated by KBW. The six biggest banks are projected to disburse about $70 billion -- if they pass.
Biggest Banks
Wells Fargo will probably pay more than $22 billion over the next 15 months, or about a third more per quarter than in the previous year, analysts estimate. JPMorgan may return more than $17 billion, or an increase of 29 percent per quarter, they predicted. Citigroup could pay more than $9 billion. Bank of America can probably boost rewards past $8 billion, more than tripling its quarterly payout. Goldman Sachs’s payouts are estimated to exceed $8 billion, about 73 percent more per quarter, while Morgan Stanley’s may surge past $4 billion, or almost six times the previous quarterly level.
The U.S. units of Deutsche Bank AG and Madrid-based Santander are among those that will probably fail on qualitative grounds this year, the Wall Street Journal reported Feb. 20, citing unidentified people familiar with the matter. That would limit the U.S. units from paying dividends to their European parents or other shareholders, the newspaper said.
Payout Ratios
“The foreign banks have a special set of challenges and there’s speculation that some of them may not do so well,” David Little, of Moody’s Analytics, said in an interview. “For most of the banks that have been doing stress testing in the U.S., they’ve had a lot of time to get used to the bar being raised.”
Analysts typically focus on the median payout ratio, or the portion of net income meted out in dividends and buybacks. This year that may rise to 79 percent, matching the average from 1999 to 2006, according to Barclays Plc estimates for 23 of the banks.
While the portion used for buybacks has eclipsed pre-crisis levels, dividend ratios remain lower. The Fed has said banks that ask to return more than 30 percent of earnings in the form of dividends will receive “particularly close scrutiny.”