Return to lender

21 Dec 2020 By John Foley Follow @johnsfoley

The central bank will let lenders resume some stock repurchases, but with limits on how much. It’s no great sacrifice: buybacks are good for earnings per share, but they don’t obviously create value. And it’s not like investors can obviously spend the money better themselves.

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The Federal Reserve released the results of its stress tests on large U.S. lenders on Dec. 18, and gave permission for them to make limited share buybacks from the beginning of 2021.

The Fed found that all of the 33 banks in the study would still have more than the minimum 4.5% ratio of equity capital to risk-weighted assets in its adverse scenario. But it said they can only pay dividends and buybacks up to an amount based on earnings over the previous year.

Major U.S. banks like JPMorgan and Bank of America paused their buyback programs in March, and the Fed made the hiatus mandatory for the biggest banks in June. At the end of September it extended the buyback prohibition to the end of 2020.

JPMorgan said following the Fed announcement that its board had authorized buybacks of up to $30 billion, starting in the first quarter of 2021. Morgan Stanley announced buybacks of up to $10 billion. Others said they would restart buybacks, without disclosing amounts.

Context News

The Federal Reserve released the results of its stress tests on large U.S. lenders on Dec. 18, and gave permission for them to make limited share buybacks from the beginning of 2021.

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