Due to concerns about regulation, Wall Street's largest banks have been hoarding capital for years, and now they are providing shareholders with the most returns in three years in the form of dividends and buybacks.
Compiled data shows that the six largest banks in the United States will return more than $100 billion to shareholders through dividends and stock buybacks in 2024, the highest level since 2021. This is also the largest proportion of profits paid to investors by these companies since before the COVID-19 pandemic.
Executives expect to provide more returns in 2025. JPM.US has always been the least repurchased among the major US banks. The bank usually invests in risk management and control, and finally met investors' demands through a $20 billion buyback plan to return cash to shareholders. JPM.US Chief Financial Officer Jeremy Barnum said the bank has a lot of excess capital and does not want to increase it further.
Given the amount of organic capital generation we are producing, that means, unless we find opportunities in the near term for organic deployment or otherwise, that means, all else equal, more capital returns through buybacks to curb excess growth, and that is our plan right now,” Barnum said on a call with analysts.
Shareholders are clamoring for buybacks because they give each investor a larger stake in the company and boost the value of outstanding shares.
Citigroup’s share buybacks “demonstrate our confidence in profitability and earnings momentum and recognize that we are trading below book and not where we would like to be,” Citigroup Chief Financial Officer Mark Mason said on a call with analysts.
After a roller-coaster regulatory period, larger buybacks and dividends are now back on the table after banks posted record profits in 2021. The following year, however, stringent Federal Reserve stress tests put the brakes on banks in the second half of 2022, and concerns about tighter capital rules surfaced in 2023.
For the largest U.S. financial companies, things are looking more positive right now. The Trump administration could bring a wave of relief in the form of reducing or canceling programs that force banks to hold more capital on their books, which should free up cash for banks to make more loans and provide more money to shareholders.
"We would expect a different approach given the change in administration and the change in leadership within the Fed," GS.US Chief Executive David Solomon said on a conference call. "We have to watch, we have to wait." Goldman Sachs is reported to have returned a record amount of capital to shareholders this year.
The rules, known as Basel III Final, are designed to comply with the Basel Committee, which aimed to limit bank risk after the 2008 financial crisis and required banks to hold more capital on their balance sheets in case risky bets go wrong.
"We have been increasing capital returns over the last few quarters, and I am also pleased to see that the more aggressive Basel III options were firmly ruled out," Citi Chief Executive Jane Fraser said on her company's conference call.
