Banks now have the capacity to be generous to shareholders. The six largest – which also include Wells Fargo, Morgan Stanley and Bank of America – may have excess capital of about $150 billion, according to their calculations and estimates by Autonomous research. Piper Sandler said firms could raise their dividend by 7.6% and repurchase 6.4% of their outstanding shares from the first quarter over the next year. Buying back shares tends to increase the earnings per share that big financial firms like to tout.
There are reasons to hold back, though. The unpredictability of Covid-19 is one: the more contagious Delta variant may be the dominant strain in the United States in a few weeks. There’s also uncertainty over the Fed itself. Randal Quarles’s term as vice chair of supervision at the central bank expires in October. He presided over some easing of regulations, like scrapping some less numerical factors like risk management in the stress test that had tripped up gaffe-prone banks like Citigroup. President Joe Biden will likely replace him with someone who would be tougher on Wall Street. That could be Fed Governor Lael Brainard, who has opposed moves to lighten the regulatory burden on banks.
Bank bosses are enjoying the good times, but they know they won’t last forever. JPMorgan boss Jamie Dimon and his peers have warned that trading revenue would fall this quarter compared to the last. The spread between long and short-term Treasury rates has narrowed, which crimps banks’ profitability. Those with foresight will give shareholders enough to keep them keen, and not much more than that.