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March 7, 2013

Banks Less Stressed Over Capital Plans

It’s payback time. Or so bank investors hope.

Thursday marks the start of a process in which big banks will learn how much capital they can return to shareholders, via dividends and share buybacks, over the coming year. The Federal Reserve will release results of “stress tests” for the banks, showing how they would fare in downturn scenarios. The central bank will also tell them informally of its decision on capital-return requests. A week later, on March 14, those results will be released publicly.

For banks already returning capital, any increase will be icing on the cake. For others, especially those like Citigroup and Bank of America that have seen return requests denied over the past two years, a green light could add oomph to their share prices.

Analysts expect healthy capital returns overall. Moshe Orenbuch at Credit Suisse, for example, forecasts that total capital return for large banks will increase to 63% of earnings from 36% in 2012. The dividend-payout ratio, he adds, should increase to 24%, from 21%; the rest will come from share buybacks, which the Fed has emphasized since it is easier for banks to curtail these should they run into trouble down the road.”


Read full Wall Street Journal article here

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