Status: 25.06.2021 3:16 p.m.
While European banks are still only allowed to pay dividends to a limited extent, the limits for US houses have fallen. And they should soon open their box wide.
The gap that has existed for years between the big American banks and their competitors in Europe has not narrowed this year. On the contrary. The latest stress test by the US Federal Reserve (Fed) shows that the big Wall Street houses now have enough equity to weather crises such as the recent corona pandemic and the associated economic slump.
The 23 institutes tested by the Fed would suffer around $ 474 billion in losses from loan defaults and other businesses in the event of a deep economic crisis. You would then still have more than twice as much equity (10.6 percent) as required by the supervisory rules. In the endurance test this time, a global recession was played through, in which the unemployment rate in the USA swells to 10.75 percent. In addition, the scenario envisaged that the US economy would decline by four percent and share prices collapse by 55 percent.
US subsidiary of Deutsche Bank also tested
The fact that the banks could withstand such a crisis without collapsing shows how strong the American banking system is now, said Fed Vice President Randal Quarles, who is responsible for banking regulation. As a result, the central bank lifted all restrictions on higher dividends and an expansion of share buyback programs.
The US subsidiary of Deutsche Bank is one of the banks tested. At 23.2 percent, it even had the highest equity ratio. In the case of foreign institutions that have a branch in the USA, the question was also whether they can transfer capital to the parent company and whether they meet requirements with regard to core capital and leverage ratios. Because Deutsche Bank has already passed the stress test in the past two years, no further details apart from the equity ratio were published this year.
Are US banks now paying out $ 140 billion?
The US banking supervisors had already signaled in March that they would lift existing restrictions on dividends and share buybacks after the next stress test if the institutions remained above the minimum capital requirements. Analysts now expect major banks like JPMorgan Chase, Bank of America and Goldman Sachs to be able to collectively pay out more than $ 100 billion to their shareholders over the next four quarters. According to other estimates, the country’s six largest banks could pay out around $ 140 billion to their shareholders. Industry observers expect the banks to comment on their plans after the stock market closes on Monday.
The ECB is sticking to its guidelines
In Europe, investors will have to be patient. The European Central Bank (ECB) continues to recommend the institutions under its supervision to be extremely cautious about distributing dividends and buying back shares. It appeals to the institutes not to distribute any dividends or only to a limited extent until September 30, 2021. The dividends are expected to account for less than 15 percent of their accumulated profits from 2019 and 2020 and no more than 20 basis points of the Common Equity Tier 1 ratio. They should determine the specific amount of the distribution in consultation with the responsible joint supervisory team.
In fact, Deutsche Bank and Commerzbank shareholders have not received a dividend for years. Other institutions, such as the largest French bank BNP Paribas, recently only paid a meager EUR 1.11 so as not to jeopardize their capital adequacy.