Many banks won Fed permission in June stress tests to boost future payouts, which means investors haven’t yet received the full benefit. (Most companies disclosed how much they paid out last year, and for those that didn’t, Bloomberg calculated it based on their shares outstanding, their stated dividends, and for two banks, their commentary on buybacks.)
Still, the KBW Bank Index of the nation’s largest lenders tumbled 20 percent last year. The surge in payouts underscored that banks have limited opportunities to keep expanding their businesses profitably. So, they’re pumping out cash. The bank index has rebounded 13 percent this year, helped by the payouts and record results.
Companies “don’t go and distribute cash to their shareholders in the form of buybacks or dividends if they have good investments to make of a long-term capital nature,” said Dan Alpert, a managing partner at Westwood Capital and senior fellow in financial macroeconomics at Cornell Law School.
U.S. Senators Bernie Sanders and Chuck Schumer blasted corporate stock buybacks in a New York Times op-ed this week, saying money should be spent on workers and expansion, boosting the economy. Bankers including JPMorgan Chief Executive Officer Jamie Dimon have long argued that investors receiving the payouts plow the cash into ventures that can use it better.
“The money doesn’t vanish,” former Goldman Sachs Group Inc. CEO Lloyd Blankfein tweeted on Tuesday. “It gets reinvested in higher growth businesses that boost the economy and jobs. Is that bad?”
This article was provided by Bloomberg News.