Fed to weigh in on bank dividends on Friday: report

Reuters Business News
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Posted: Mar 17, 2011 6:12 PM
Fed to weigh in on bank dividends on Friday: report

By Joe Rauch and Dave Clarke

CHARLOTTE, N.C./WASHINGTON (Reuters) - Some of the largest U.S. banks will be notified on Friday whether they passed a second round of stress tests conducted by the Federal Reserve, the Wall Street Journal reported on Thursday.

The newspaper said the U.S. central bank will then allow banks to announce plans to raise their dividends, but are barred from discussing the specific results of the test.

Investors have clamored for the banks to restore the quarterly payouts after they were slashed to as little as 1 cent per share -- or cut entirely -- at the height of the financial crisis in 2008.

JPMorgan Chase & Co <JPM.N>, Wells Fargo & Co <WFC.N> and US Bancorp <USB.N> are expected to be among the first banks to increase their dividend.

Each bank has previously said they plan to raise their dividends in 2011 soon after receiving approval to do so.

U.S. banks paid $53.9 billion in dividends in 2010, according to Federal Deposit Insurance Corp data. That figure is roughly half the $110 billion paid in 2007 before the financial crisis fully took hold.

Some lenders, like Bank of America Corp <BAC.N>, are not expected to be notified of their stress test results.

The bank -- among others -- will be part of a second group that will be notified later this year, because those lenders plan to raise their dividends in the second half of 2011 or in 2012.

Banks are also expected to target a lower dividend payout ratio than before the financial crisis.

Most of the banks are targeting a dividend equal to 30 percent of earnings. That would be below dividend payouts that sometimes reached more than 50 percent of earnings before the crisis.

The latest stress test -- a follow-up to a 2009 exam -- involves the same group of the 19 largest U.S. banks.

The Wall Street Journal said the test examines how the banks' would weather certain economic shocks, like U.S. unemployment rising to 11 percent.

(Reporting by Joe Rauch and Dave Clarke; Editing by Gary Hill, Bernard Orr)