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Stock Analyst Update

Bank Stress Tests 2021: A Return To Share Repurchases

As all banks 'passed,' we expect sizable share repurchases to be forth coming, and dividend hikes are also on the table.

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We had been expecting the banks to perform well on this latest round of stress tests, as the sector has built up excess capital and reserves and had already done well on multiple rounds of tests last year. Things generally went as expected, as all banks “passed” the tests, and calculated stress capital buffers, or SCBs, are generally coming out about where we were expecting them. As a result, we expect sizable share repurchases to be forth coming, and dividend hikes are also on the table. We calculate that most banks are carrying roughly a midsingle percentage of market cap in excess capital, with Wells Fargo (WFC) and Capital One (COF) being the big standouts, carrying over 10% in excess each. We also expect dividend hikes to occur, but to be modest, likely in the low to mid-single-digit percentage growth range.

As a reminder, the U.S. Federal Reserve is keeping its current buyback and dividend restrictions in place through June 30, but starting in July we expect the capital return flood gates to reopen. The Fed is also putting a moratorium on releases related to planned capital actions and SCB requirements from the banks until Monday, June 28. Because banks are now using the SCB framework, the types of capital return announcements could differ from past years and could be more vague, as banks aren’t seeking approval for specific plans but are instead allowed freedom in their capital returns as long as capital levels stay at appropriate levels. We’ll know more starting on Monday.


Only 19 banks were required to participate this year, compared to 33 from 2020, as many banks are only required to participate every other year. Four banks that could have sat out this year still elected to participate. These banks were Regions (RF), BMO (BMO), MUFG (MUFG), and RBC (RBC), bringing the total number of participants to 23. 


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Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.