Fed slashes payout plans of large Wall Street banks

Wed Mar 11, 2015 6:44pm EDT
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By Douwe Miedema

WASHINGTON (Reuters) - Four of the largest U.S. banks just scraped by in an annual Federal Reserve check-up on the industry's health, underscoring their top regulator's enduring doubts about Wall Street's resilience more than six years after the crisis.

Goldman Sachs Group Inc (GS.N: Quote), Morgan Stanley (MS.N: Quote) and JPMorgan Chase & Co (JPM.N: Quote), all with large and risky trading operations, lowered their ambitions for dividends and share buybacks, the Fed said on Wednesday, to keep them robust enough to withstand a hypothetical financial crisis. The revised plans allowed them to pass the Fed's simulation of a severe recession.

And Bank of America Corp (BAC.N: Quote) was told to get a better grip on its internal controls and its data models even as the Fed approved its payout plans after the so-called stress tests.

"Bank of America exhibited deficiencies in its capital planning process.... in certain aspects of (its) loss and revenue modeling practices," the Fed said.

The failure of four of the largest U.S. banks to win unconditional approval on their first attempt underscores the split between Wall Street banks and their regulators over whether the lenders have enough capital on their books to weather another crisis.

Citigroup (C.N: Quote), whose Chief Executive Mike Corbat has staked his job on not failing the so-called stress tests again, will sigh a breath of relief as it passed, allowing it to raise its payouts after failing last year for the second time in three years.

The Fed first started running its so-called stress tests in 2009, when many of the largest U.S. banks were struggling to repay taxpayer bailout funds they took after the collapse of Lehman Brothers a year earlier.

Citi said it will raise its quarterly dividend to 5 cents a share from the penny a share payout it had to adopt during the financial crisis and that it had won approval to buy back $7.8 billion of stock over five quarters. Shares in Citi rose by as much as 3.2 percent after the bell.   Continued...

The United States Federal Reserve Board building is shown behind security barriers in Washington October 28, 2014. REUTERS/Gary Cameron