Wall St. banks launch massive buybacks, boost dividends

Kaja Whitehouse | USA TODAY

The heart of the U.S. financial system got a seal of approval from the Federal Reserve Wednesday, prompting major U.S. banks to unleash a flood of dividend increases and more than $23 billion in stock buybacks on their shareholders.

In the second phase of the Fed's so-called stress tests, 29 out of 31 top lenders got the thumbs up to spend their cash on shareholders.

Within minutes of the release of the results of the tests, at least nine major banks either increased their quarterly dividends, announced new stock repurchase plans — or both.

• Citigroup (C), which flunked the Fed's stress test last year, said it will boost its quarterly dividend by 5 cents a share from one penny, and announced plans to buy back up to $7.8 billion in stock.

• JPMorgan Chase (JPM) said it will increase its quarterly dividend by 4 cents a share to 44 cents and buy back $6.4 billion of common stock.

• Morgan Stanley (MS) said it would increase its dividend by 50% to 15 cents a share and announced plans to buy back $3.1 billion shares.

• Wells Fargo (WFC) aid it plans to raise its quarterly dividend by 7% to 37.5 cents a share.

• State Street (STT)aims to boost its quarterly dividend to 34 cents from 30 cents per share pending board approval. The company also plans to to buy back up to $1.8 billion of its stock.

• Even Bank of America (BAC), which was only bank given a conditional pass by the Fed, jumped into the action and announced plans to buy back $4 billion in stock through the second quarter of 2016.

BofA said it will retain its dividend at the current rate of $0.05 per share per quarter.

The nation's second largest bank received a conditional okay for its capital spending plan on Wednesday, but must resubmit its spending plan in September due to "deficiencies" in its revenue modeling and internal controls, the Fed said.

Two banks flunked the Fed's stress test this year, which comes in two parts and seeks to assess how the nation's biggest banks will fare in a severe economic recession.

The Fed rejected capital spending plans by Deutsche Bank Trust Corporation and Santander Holdings USA due to what it said were "widespread and substantial weaknesses across their capital planning processes."

It's the second year in a row that Santander Holdings, the U.S. operations of Banco Santander (SAN) of Spain, has flunked the Fed's test.

Deutsche Bank (DB), the publicly traded parent company of Deutsche Bank Trust Corporation, said the unit accounts for less than 5% of the bank's global assets. It was the unit's first time enduring the stress test, the company said in a press release.

Three banks — Goldman Sachs Group (GS), JPMorgan Chase and Morgan Stanley — were also forced to adjust their original planned capital actions following the first phase of the Fed's stress results, released last week.