James Gorman, Chairman and Chief Executive Officer of Morgan Stanley, speaks during a Bloomberg Television interview in Beijing, China, May 30, 2019.
Giulia Marchi | Bloomberg | Getty Images
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Wall Street powerhouse Morgan Stanley doubled its quarterly dividend and announced a new $ 12 billion share buyback plan.
The bank said in a press release on Monday that its dividend will rise to 70 cents per share from the third quarter and that it will buy up to $ 12 billion of treasury stock by June 2022. Morgan Stanley’s shares rose nearly 4% -hour of trading after that.
“Morgan Stanley has amassed significant excess capital in recent years and now has one of the largest capital buffers in the industry,” said CEO James Gorman in the press release. “The actions taken by the board reflect the decision to realign our capital base in line with the requirements of our transformed business model.”
Morgan Stanley’s new capital plan appeared to be one of the most aggressive of the banks in a hurry at close. Larger rival JPMorgan Chase has increased its dividend 11% to $ 1 per share, according to the bank. JPMorgan said it was “still authorized” to tap into an existing share buyback plan.
Bank of America said its dividend would rise 17% to 21 cents. In April, the bank announced a $ 25 billion share buyback plan. Goldman Sachs said it plans to increase its dividend 60% to $ 2 per share, pending approval from the bank’s board of directors.
Wells Fargo plans to double the dividend to 20 cents per share, subject to board approval. It also announced a $ 18 billion share buyback plan scheduled to begin in the third quarter. The company’s dividend increase was widely expected by analysts as it was one of the few banks to cut its payout following last year’s stress test.
Meanwhile, Citigroup released a statement from CEO Jane Fraser not committing to any specific increases. Unlike the other companies, Citi also said their stress capital buffer will increase this year, which may have diminished their ability to increase ROI. The bank’s shares were down nearly 1%.
“We look forward to continuing our planned corporate actions, including an ordinary dividend of at least $ 0.51 per share, and additional share buybacks, which are particularly attractive when our share price is below tangible book value per share,” said Fraser in the statement .
Last week, the US Federal Reserve announced that all 23 banks that passed the 2021 stress test passed, with the industry “well above” capital requirements in a hypothetical economic downturn. While the institutions would post losses of $ 474 billion in this scenario, the loss-absorbing capital would still be more than double the required minimum level.
The test was an important milestone for American banks and took place in the year after a global pandemic threatened to subject the industry to a real stress test. After playing a key role in the 2008 financial crisis, banks had to undergo the annual ritual of asking regulators for permission to raise dividends and buy back stocks.
Now banks will regain the flexibility in how to spend capital in the form of dividends and buybacks. As long as they keep the capital level above the so-called stress capital buffer, banks can make more of their own decisions. The new regime was supposed to start last year, but the pandemic kicked in.
While analysts have said that bank investors have mostly considered higher payouts from banks, higher-than-expected capital plans can still be viewed positively.
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