DS News

28 MAJOR BANKS PASS THE FED'S STRESS TEST Five of the nation's largest financial firms—Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo— announced their intention to raise the price of their common stock dividends following the U.S. Federal Reserve's approval of their respective capital plans. e Fed announced it approved of the capital plans of 28 of the 31 companies that participated in its recently conducted Comprehensive Capital Analysis and Review. e review tested the strength of the financial institutions' capital planning processes and determined if the projected capital ratios of the firms could withstand a hypothetical scenario of severe economic stress. "Our capital plan review helps ensure that the capital distribution plans of large banks will not compromise their ability to continue lending to businesses and households even during a period of serious financial stress," Federal Reserve Governor Daniel K. Tarullo said. "It also provides a structured assessment of their risk management capacities." Citigroup plans to increase its common stock dividend up to $0.05 per share and initiate a common stock repurchase program for up to $7.8 billion. "We are committed to delivering meaningful returns of capital to our shareholders, and today's decision will allow us to begin doing so. We have worked very hard over the last 12 months to further strengthen our capital planning process, with the goal of embedding it into the way we run the firm," said Michael Corbat, CEO of Citi. "We are committed to building on the progress we have made and ensuring that we have a sustainable process that serves the financial system, as well as our shareholders. We want Citi to be an indisputably safe-and-sound institution, and will do everything in our power to make that the case, year in and year out." Goldman Sachs announced it would increase its dividend by 5 cents, up to $0.65 per share, starting in the second quarter of this year, pending approval from the firm's board of directors. "We remain focused on managing our resources dynamically, growing our client franchise, and generating superior returns for our shareholders while remaining well capitalized," Goldman Sachs CEO Lloyd Blankfein said. JPMorgan Chase intends to increase its dividend from $0.40 up to $0.44 per share. e firm's Board of Directors also authorized the repurchase of up to $6.4 billion worth of common equity stock. "We are pleased that our board intends to raise the dividend and continue our equity buyback program," Jamie Dimon, chairman and CEO of JPMorgan Chase, said. Meanwhile, Morgan Stanley announced a common stock repurchase program for up to $3.1 billion of common stock, and the investment firm intends to raise its dividend by 5 cents up to $0.15. "e successful repositioning of the firm and our ability to generate more consistent earnings enables us to increase both our dividend and share repurchase for the second consecutive year," said James Gorman, chairman and CEO of Morgan Stanley. "Today's actions reflect the hard work of our employees over the last several years as we have been executing our strategic priorities." Wells Fargo intends to raise its dividend by 7 cents, up to $0.42 per share. "We are pleased to receive the Federal Reserve Board's non-objection to our capital plan to increase our common stock dividend and continue our strong share repurchase activity," Wells Fargo chairman and CEO John Stumpf said. "is result again demonstrates the benefit of our diversified business model and conservative risk discipline, which have positioned us well to return capital to shareholders within our targeted range while maintaining strong capital levels." While the Fed did not object to Bank of America's capital plan, the central bank requested Bank of America send a revised plan by the end of the third quarter (September 30) in order to address weaknesses discovered in the capital planning process. e Fed rejected the capital plan of two banks, Deutsche Bank and Santander Holdings. All dividend increases would be effective starting in the second quarter of 2015. All common stock repurchase programs cover the period starting with the second quarter of 2015 and ending with the second quarter of 2016. KBRA: LACK OF CREDIT AVAILABILITY, LOW INVENTORY CHALLENGING HOUSING MARKET Two challenges facing the U.S. housing market are a dearth of credit creation and a lack of available inventory, according to a report released early last month by the Kroll Bond Ratings Agency (KBRA) that was presented by KBRA Senior Managing Director and Head of Research Christopher Whalen at the 2nd Annual Real Estate Symposium in Salt Lake City. Whalen said the dearth of available credit for housing is a function of Dodd-Frank Act, which was created in part to protect consumers from predatory and other harmful lending and financial practices by businesses, and the oppressive U.S. regulatory environment, which discourages banks and other lenders from expanding credit for both consumers and businesses. Whalen asserted the intention of Dodd-Frank was to prevent the bottom third of U.S. households from getting a mortgage—a goal that Whalen says has been achieved. Single-family home prices in most metro areas are beginning to rebound from a weak showing last summer, based on data released by Weiss Residential Research, according to Whalen. But while Whalen said low mortgage interest rates are causing home prices to rise and encouraging sales of mortgages into the agency, the low interest rates have not translated into an increase in mortgage lending—especially among purchase mortgages. Whalen reported in the presentation that loan originations for mortgages were at a 12-year low with no recovery in sight. Meanwhile, bank revenues from mortgage sales, securitization, and servicing declined by 35 percent year- over-year down to $9.1 billion. e good news for banks is that non-current real estate loans have declined for 19 straight quarters, below 2 percent for all loans. e symposium last month in Salt Lake City was sponsored by Green River Capital, a wholly owned subsidiary of Clayton Holdings, LLC.

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