Wall Street is raising payouts to investors on stress-test success

Morgan Stanley led big US banks in raising payouts to investors — by jacking up dividends or announcing plans to buy back shares — after amassing cash piles that easily met the Federal Reserve’s capital requirements.

Dividend payouts by the nation’s six largest lenders will rise, on average, by almost half — and that’s with Citigroup abstaining from an increase — according to statements issued  late on Monday. Morgan Stanley doubled its quarterly payout while also announcing as much as $12 billion in stock buybacks.

“Morgan Stanley has accumulated significant excess capital over the past several years and now has one of the largest capital buffers in the industry,” CEO James Gorman said in the bank’s statement.

Shares of Morgan Stanley climbed 3.71 per cent during early New York trading.

The firms began announcing their plans for distributing capital after getting the green light from the Fed to resume dividend and buyback increases. All lenders passed the central bank’s stress tests last week, which freed them from remaining Covid-era restrictions on payouts.

The stress tests used to trigger anxiety across Wall Street, but the banks’ solid showing underscores how comfortable the industry has grown with the exercises. This year, with firms sitting on a massive stockpile of excess cash, the exams were primarily an indicator of how much of that money can be doled out to shareholders.

Wells Fargo & Co, the troubled San Francisco-based lender, announced an $18 billion buyback program and doubled its dividend to 20 cents. Investors may be less than enthralled with the payout, however, which stood at 51 cents about a year ago when the scandal-plagued firm cut it to 10 cents.