Morgan Stanley doubles its dividend as most banks raise payouts following Fed stress tests

Morgan Stanley, the Wall Street powerhouse, doubled its quarterly dividend and announced a new $12 billion stock repurchase plan.

The bank said Monday in a press release that its dividend will jump to 70 cents a share starting in the third quarter, and it would buy up to $12 billion of its own stock through June 2022. Shares of Morgan Stanley popped almost 4% in after-hours trading.

“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 release. “The action taken by the Board reflects a decision to reset our capital base consistent with the needs we have for our transformed business model.”

Morgan Stanley’s new capital plan appeared to be among the most aggressive of the banks rushing to announce at the market close.

Larger rival JPMorgan Chase boosted its dividend by 11% to $1 per share, according to the bank. JPMorgan said it “continues to be authorized” to tap an existing share repurchase plan. Bank of America said its dividend would rise 17% to 21 cents. In April, the bank announced a $25 billion share repurchase plan.

Goldman Sachs said it planned on boosting its dividend by 60% to $2 per share, subject to approval from the bank’s board. Wells Fargo said it plans on doubling its dividend to 20 cents a shares, subject to board approval. It also announced an $18 billion stock repurchase plan beginning in the third quarter. The firm’s dividend increase was widely expected by analysts because it was one of the only banks forced to slash its payout after last year’s stress test.  

Meanwhile, Citigroup released a statement from CEO Jane Fraser that did not commit to any specific increases. Unlike the other firms, Citi also said its stress capital buffer requirement will increase this year, which may have reduced its ability to boost capital return. Shares of the bank dipped almost 1%.

“We look forward to continuing with our planned capital actions, including common dividends of at least $0.51 per share, and to continuing share repurchases, which are particularly attractive when our stock price is below tangible book value per share,” Fraser said in the statement.

Last week, the Federal Reserve announced that all 23 banks that took the 2021 stress test passed, with the industry “well above” required capital levels in a hypothetical economic downturn. While the institutions would post $474 billion in losses in this scenario, loss-cushioning capital would still be more than double the minimum required levels.

The test was a key milestone for American banks, coming in the year after a global pandemic threatened to put the industry through a real-life stress test. After playing a key role in the 2008 financial crisis, banks were forced to undergo the annual ritual, and had to ask regulators for permission to boost dividends and repurchase shares.

Now banks reclaim flexibility in how they choose to dole out capital in the form of dividends and buybacks. As long as they maintain capital levels above something called the stress capital buffer, banks can make more of their own decisions. The new regime was supposed to start last year, but the pandemic intervened.

While analysts have said bank investors have mostly factored in higher payouts from banks, bigger-than-expected capital plans were still viewed favorably.