Earlier this month, the Federal Reserve announced that it would allow some banks that took bailout funds to raise their dividend payouts and buyback stock to reward shareholders. The decision came after the latest round of “stress tests” for the banks. How did these Wall Street firms respond? Quite excitedly. According to Bloomberg, banks proceeded to roll-out nearly $18 billion in common stock buyback and almost $6 billion in yearly dividend increases just in the next week alone.
It’s heartwarming to see that banks are so eager to reward their shareholders, most of whom probably endured quite a lot over the past three years because of their investments. But such lofty payouts should raise eyebrows. It certainly caused a bit of concern from Standard and Poor’s, which feels that the banks may not be sufficiently capitalized or ready to begin issuing such lofty shareholder benefits. Apparently, they have a higher standard than the Federal Reserve. S&P even indicated that it may lower its ratings on certain banks because of dividend or buyback programs.
JPMorgan Chase (NYSE: JPM) made the biggest splash, announcing that it would buy back $15 billion in stock and raise quarterly dividends to 25 cents per share from a lowly 5 cents per previously. Goldman Sachs (NYSE: GS) said it planned to buy back the $5 billion in preferred stock owned by Warren Buffett, but they may have a problem trying to locate the Omahan Oracle.
Citigroup (NYSE: C) announced that it planned to pay it’s embattled shareholders a penny per share. Which is great, until they found out it was after Citigroup shares completed a 1-10 reverse stock split. Wells Fargo (NYSE: WF) said it intends to issue a special 7 cent dividend payment, on top of its quarterly 5 cent distribution. The bank also said it plans to buy back 200 million shares.
But it seems that one bank received the short-end of the stick. Red-headed stepchild Bank of America Corp. (NYSE: BAC) was denied its dividend plan, and it doesn’t look anything BAC could’ve done would’ve made a difference.
