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Fed lets some big banks boost or restart dividend payments

The banks are freed from restrictions in place since early 2009. The Fed's decision comes after a second round of 'stress tests.' Wells Fargo and JPMorgan Chase announce increases.

March 19, 2011|By Jim Puzzanghera, Los Angeles Times

Reporting from Washington— — The Federal Reserve is letting some of the nation's 19 largest banks increase or restart dividend payments, freeing them from restrictions in place since early 2009.

The Fed's decision came after it completed a second round of extensive "stress tests" on the banks to determine whether they could release some of their capital reserves and still withstand future economic shocks.

Some of the banks, such as Wells Fargo & Co. in San Francisco and JPMorgan Chase & Co. in New York, quickly announced increases in dividends following the Fed's statement Friday.

The Fed would not say which banks or how many passed the tests.

JPMorgan boosted its quarterly dividend to 25 cents a share from 5 cents and said it would buy back $15 billion worth of stock. Wells Fargo increased its first-quarter dividend to 12 cents a share from 5 cents and said it would repurchase as much as 200 million shares.

In addition, SunTrust Banks Inc. in Atlanta announced a $1-billion common stock offering to raise money to pay back $4.85 billion in bailout money it still owes.

With the financial system in deep distress in February 2009, the Fed told the largest bank holding companies that they needed to substantially reduce or eliminate dividends to stabilize their institutions.

The Fed at that time conducted a first round of extensive stress tests on the banks to determine whether they needed to raise more money to be able to withstand a deepening of the recession.

Those results were made public then to reassure the markets, and 10 banks, including Wells and Bank of America Corp., were told to raise a total of $75 billion.

Last fall, the Fed launched another round of tests called the Comprehensive Capital Analysis and Review to look at the capital plans of each of the 19 banks.

Friday's decision that some banks would be freed from the 2009 restrictions reflects, in part, "the significant improvement in both economic conditions and the capital positions of financial institutions," the Fed said.

"The return of capital to shareholders under appropriate conditions is a step in the process of improvement in the financial sector and will help to promote banks' long-term access to capital," the nation's central bank said. "Such access will support lending to consumers and businesses."

If they boost dividends or make other capital distributions, banks still would be expected to "remain viable financial intermediaries" even under "stressed" economic conditions, the Fed said.

Banks would have to continue increasing their capital and total dividends would be limited to no more than 30% of anticipated 2011 profits.

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