Wells Fargo Passes Fed Test: Wells Fargo (NYSE:WFC) has announced that it will buy back nearly $24.5 billion of stock after the bank passed the Federal Reserves stress tests.
The results of the Federal Reserve stress tests were announced today, forcing six US banks to reduce their proposals of paying out more to their shareholders. Banks JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group Inc. (NYSE:GS), Morgan Stanley (NYSE:MS), American Express Co.(NYSE:AXP), M&T Bank Corp. (NYSE:MTB) and KeyCorp (NYSE:KEY) were all affected and had to change their initial requests to distribute cash.
The Stress Tests
The stress tests put banks through hypothetical scenarios that test whether the bank can survive an economic shock or downturn. Upon their results, twenty-eight other firms, including Wells Fargo, can continue with their original proposals to boost stock buybacks and dividends, as they passed the test. “Passing” means the bank can still hold enough capital to sustain itself should a downturn occur. Too little capital suggests that a bank will fail in the event of a crash, therefore the Federal Reserve places restrictions on bigger dividends and buybacks for banks that fail the stress tests.
Wall Street analysts had predicted a combined payout of $170 billion from big banks over the coming 12 months, but that figure is still inline as the Federal Reserve confirmed that on average the banks will pay out 95% of their profits.
After the test, Morgan Stanley and Goldman Sachs promised to keep their payouts at the same level as last years. JPMorgan Chase, on the other hand, said it will “boost its quarterly dividend by 43% and buy back as much as $20.7 billion in shares”.
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Back in February, Wells Fargo was ordered by the Federal Reserve to stop growing until it better managed a host of risk-management and oversight problems that created unauthorized accounts and other consumer let-downs.
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