Four major U.S. banks – Bank of America, Goldman Sachs, Morgan Stanley, and Wells Fargo – announced on Monday that they are raising their dividends. The decision comes after the banks managed to clear the annual stress test exercise by the Federal Reserve.
Goldman Sachs will bump its dividends to $2.50, representing a 25 percent increase, while Bank of America opted for a 5 percent increase that will amount to 22 cents per share. Morgan Stanley unveiled plans to hike dividends to 77.5 cents per share alongside a $20 billion share buyback program. Wells Fargo is upping its dividends from 25 cents to 30 cents.
Unlike Bank of America, Goldman Sachs, Morgan Stanley, and Wells Fargo, some major U.S. banks opted to sit tight despite positive results in the annual stress test exercise. This included JPMorgan & Chase and Citigroup, who are holding onto the excess capital due to possible economic challenges in the future.
The Federal Reserve’s stress test was put in place after the financial crisis in the late 2010s. The test looks to assess “whether banks are sufficiently capitalized to absorb losses during stressful conditions” while also being able to meet obligations to creditors and counterparties and continue the practice of lending to businesses and households. The exercise is performed on an annual basis using at least two different scenarios.