According to the Federal Reserve, the restrictions on dividends and share repurchases will end for almost all the banks on the 30th of June.
Banks stocks jumped in reaction to the news by the Federal Reserve that the temporary restrictions on bank dividends and buybacks will soon come to an end. The news triggered a rise in banks stocks at after-hours trading on the 25th of March.
Banks Stocks Jump
As stated in a CNBC report, stocks of investment banking company JPMorgan Chase & Co. (NYSE: JPM) advanced 1%, and Citigroup (NYSE: C) increased 0.7%. Financial services company Wells Fargo & Co (NYSE: WFC) stock grew 0.7%, while Goldman Sachs Group Inc (NYSE: GS) shares added 0.68%.
At press time, JPMorgan is up 0.92% to $153.95 in pre-market trading. According to current data provided by MarketWatch, Citigroup has gained 1.09%, trading at $72.50 over its previous close of $71.72. In addition, Wells Fargo has climbed 1.15% to $39.75. Goldman Sachs stock is currently trading at $333.98, a 1.04% gain over its previous close of $330.55.
Banking giants in the US stopped buying back stock during the peak of the pandemic in March last year. The Federal Reserve announced an official restriction on bank dividends as banks suffered from the negative effects of the unprecedented global health crisis.
Restrictions on Bank Dividends and Buybacks to End on 30th June
According to the Federal Reserve, the restrictions on dividends and share repurchases will end for almost all the banks on the 30th of June. The Fed, however, added that lifting the restrictions is subject to whether the banks pass the ongoing round of stress tests. Specifically, the Federal Reserve said that restrictions will end for a bank that remains “above all of its minimum risk-based capital requirements in this year’s stress test.”
Furthermore, the Fed added that any bank that does not meet the target would remain under the restriction till the 30th of September. Such banks will also face harsher restrictions.
Before now, the Federal Reserve had said that the restrictions would end in the first quarter of the year. Although the latest news is delay, it, however, provided more clarity to investors.
Banks are beginning to recover from the pandemic shock. Data showed that JPMorgan, Citigroup, Wells Fargo, and Goldman Sachs had surged significantly over the past months. The Fed’s vice-chair for supervision, Randal Quarles, said:
“The banking system continues to be a source of strength, and returning to our normal framework after this year’s stress test will preserve that strength.”
However, the four banking giants have declined in the last five days.
Treasury Secretary, Janet Yellen, said during a congressional hearing on the 24th of March that she supports both the decision to resume capital disbursements and to suspend them. She stated:
“I have been opposed earlier when we were very concerned about the situation the banks would face about stock buybacks. But financial institutions look healthier now, and I believe they should have some of the liberty provided by the rules to make returns to shareholders.”
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