Major US banks demonstrate capital confidence, accelerating stock buybacks ahead of Federal Reserve stress test results announcement
The six largest banks in the United States repurchased over $14 billion worth of stocks in the first quarter of this year, a 73% increase from the slow buybacks in the second half of last year. This demonstrates the optimistic outlook of these banks on their capital levels. Previously, banks had slowed down stock buybacks in response to new capital rule proposals, but recent signs indicate that these proposals have been softened. The Federal Reserve will announce the results of the annual bank stress tests on Wednesday, which have significant implications for banks' capital requirements and stock buybacks. Despite the increase in buyback pace, it remains well below the peak levels of the past few years
According to the financial news app Zhitong Finance, the Federal Reserve will announce the annual bank stress test results after the U.S. stock market closes on Wednesday. In the test, the performance of large banks' balance sheets under the assumption of a severe economic recession will be tested. The test results determine the capital required for banks to maintain healthy operations, as well as the capital that banks can return to shareholders through stock buybacks and dividends.
However, the largest banks in the United States did not wait for the stress test results on Wednesday to show optimism about their capital levels. It is reported that in the first quarter of this year, the six largest banks in the United States repurchased over $14 billion worth of stocks, a 73% increase from the slow buybacks in the second half of last year. In the second half of last year, facing new capital rule proposals, banks slowed down their stock buyback pace. But in recent months, all signs indicate that these proposals have been watered down.
In 2022, more severe test results than expected have caused banks to put the brakes on stock buybacks. However, over the past 12 months, more attention has been paid to the direction of capital rules rather than the current rules. The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency released a plan last year that requires stricter capital requirements for banks. Under this plan, capital requirements for large banks will increase by 19%. In response, Wall Street has launched a fierce lobbying campaign to oppose this plan. Federal Reserve Chairman Powell stated earlier this year that the plan will undergo "broad and substantive revisions."
It is reported that the Federal Reserve has presented a document to other regulatory agencies listing possible revisions that would significantly soften the new requirements, potentially resulting in a mere 5% increase in capital requirements. However, regulatory officials have not reached an agreement. The Federal Reserve stated in a release that no decisions have been made regarding timing, procedures, or content.
The pace of buybacks by the six largest U.S. banks in the first quarter is expected to drive them to repurchase $58 billion worth of stocks this year, a significant increase from the past two years. However, this number is still far below the over $80 billion in 2021 and the peak of over $100 billion in buybacks in 2019.
In recent months, top officials of the largest U.S. banks have taken turns to "show off" their excess capital. Wells Fargo CEO Charlie Scharf stated last month that the bank "hopes to increase dividends." Goldman Sachs President John Waldron stated that the industry plans to do so. Bank of America CEO Brian Moynihan stated that if the final stage of Basel III is watered down, "our excess capital will increase significantly." JPMorgan Chase CEO Jamie Dimon stated last month that the bank repurchases approximately $2 billion worth of stocks each quarter and "can do more."
