Fed allows banks to resume stock buybacks with limitations Description video: Leslie Picker joins ‘Closing Bell’ to report the second round of Fed stress tests. The Fed has extended current restrictions on distributions with modifications. For access to live and […]
Fed allows banks to resume stock buybacks with limitations
Leslie Picker joins ‘Closing Bell’ to report the second round of Fed stress tests. The Fed has extended current restrictions on distributions with modifications. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi \n\nThe Federal Reserve announced on Friday that it will allow the nation’s big banks to resume share buybacks in the first quarter of 2021 subject to certain rules and that the industry fared well in a second round of stress tests.\n\nDividends will continue to be capped, the Fed said, and the sum total of a bank’s dividends and repurchases in the first quarter cannot exceed the average quarterly profit from the four most recent quarters.\n\nShare repurchases are important for the industry, typically making up about 70% of the industry’s capital payouts to shareholders.\n\nJPMorgan Chase, the largest U.S. bank by assets, announced in the minutes after the Fed’s test results that its board had approved a new share repurchase program of $30 billion starting in 2021.\n\n“We will continue to maintain a fortress balance sheet that allows us to safely deploy capital by investing in and growing our businesses, supporting consumers and businesses, paying a sustainable dividend, and returning any remaining excess capital to shareholders,” CEO Jamie Dimon said in a release.\n\nBank stocks rose across the board in after-hours trading with JPMorgan up 5.3%, Goldman Sachs up 4.4% and Wells Fargo up 3.5%.\n\nThe announcement, though not a complete unwind of the Fed’s restrictions, signaled that officials are increasingly satisfied with the amount of capital the largest U.S. banks have been able to compile over the course of 2020.\n\nFed Vice Chair for Supervision, Randal Quarles, offered positive remarks and said the capital restrictions the central bank put in place are working.\n\n“The banking system has been a source of strength during the past year and today’s stress test results confirm that large banks could continue to lend to households and businesses even during a sharply adverse future turn in the economy,” Quarles said in a press release.\n\nBolstered capital requirements will not be reset in an effort to ensure sufficient safeguards for unexpected losses, according to the Fed’s report.\n\nSenior Fed officials said that large banks have managed to build key capital ratios and loss absorption capacity even while setting aside about $100 billion in loan-loss reserves.\n\nThe Fed has for more than a decade devised hypothetical doomsday scenarios each year to test whether the nation’s largest banks could withstand various recession simulations.\n\nBut banks faced their own real-world test in the first half of 2020, when a spike in U.S. unemployment and widespread business closures wiped out a significant portion of U.S. income. The springtime recession forced banks to build up loan-loss reserves and prepare for widespread credit losses.\n\nThe halt to normal business throughout much of the U.S. sent shares of JPMorgan Chase and Bank of America down 16.6% and 15.1%, respectively, between the start of March and the end of April. Wells Fargo equity lost 29% of its value over the same period.\n\n» Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision\n» Subscribe to CNBC: https://cnb.cx/SubscribeCNBC\n» Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic\n\nTurn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide.\n\nThe News with Shepard Smith is CNBC’s daily news podcast providing deep, non-partisan coverage and perspective on the day’s most important stories. Available to listen by 8:30pm ET / 5:30pm PT daily beginning September 30: https://www.cnbc.com/2020/09/29/the-news-with-shepard-smith-podcast.html?__source=youtube%7Cshepsmith%7Cpodcast \n \nConnect with CNBC News Online\nGet the latest news: http://www.cnbc.com/\nFollow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC\nFollow CNBC News on Facebook: https://cnb.cx/LikeCNBC\nFollow CNBC News on Twitter: https://cnb.cx/FollowCNBC\nFollow CNBC News on Instagram: https://cnb.cx/InstagramCNBC\n\nhttps://www.cnbc.com/select/best-credit-cards/ \n\n#CNBC\n#CNBCTV
Quarterly profit of US banks may fall back to “pre-normal” levels
This Friday, the largest US banks will begin publishing their fourth quarter results, which may show that profits fell as much as 40% from a year earlier, even before the pandemic broke out..
But investors will focus on finding clues to expected earnings growth in 2021..
«You can see the fourth quarter as a kind of transitional one by looking at some of the challenges of 2020 in retrospect and looking ahead to an improved 2021», – said analyst at Barclays Jason Goldberg (Jason Goldberg).
According to Goldberg, the pandemic has caused a sharp drop in interest rates and a record drop in the difference between what lenders charge for loans and what they pay for money..
The pandemic also pushed major US banks to commit more than $ 65 billion to cover expected credit losses..
IBES Refinitiv estimates that from these low values, banks’ profits could more than double in the first and second quarters of 2021.
Bank shares have risen by an average of 35% since the beginning of November. Effective COVID-19 vaccines have since begun to circulate, Democrats have come to power in Washington with promises of more economic stimulus, and the Federal Reserve has said it will allow banks to buy back shares again, which will increase profits per share..
Analysts raised their forecasts for 2021, but as of last Friday they showed that Citigroup Inc reported a 42% drop in fourth-quarter earnings, while Wells Fargo & Co about 39% drop. JPMorgan Chase estimates & Co suggest a more moderate fall of 5%.
These three mentioned above, banks will report their results on Friday.
Bank of America Corp is expected to report a 33% drop in quarterly profit next week.
Morgan Stanley is also expected to grow 1%, while Goldman Sachs Group Inc is expected to grow 43% on the back of the growth in the share of fast-growing companies in the capital markets..