Wells Fargo forced to reduce dividend, these banks deemed theirs safe

Wells Fargo forced to reduce dividend, these banks deemed theirs safe
Written by:
Jayson Derrick
29th June, 23:50
  • Big banks for the most part can maintain their quarterly dividend as part of a Fed stress test.
  • There was one noteable standout, Wells Fargo -- although this was widely expected.
  • Wells Fargo will confirm in July a new quarterly dividend payout.

Most of the big banks released Monday results from the Federal Reserve’s stress test with one bank a notable standout as Wells Fargo & Co (NYSE: WFC) must lower its dividend.

Dividends safe at these banks

The vast majority of big Wall Street banks confirmed Monday they passed the Fed’s stress test. A passing grade represents a green-light from the central bank and U.S. government to continue paying investors the same quarterly dividend.

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According to CNBC, some of the big banks that passed the test include Goldman Sachs Group Inc (NYSE: GS), Bank of America Corp (NYSE: BAC), Morgan Stanley (NYSE: MS), JPMorgan Chase & Co. (NYSE: JPM) and Citigroup Inc (NYSE: C).

Big banks resisted public calls to lower their dividends once the COVID-19 pandemic hit the U.S. and its impact was felt worldwide. While the group were willing to cut their share buyback program, dividends were viewed as a crucial characteristic and key selling point for investors.

Goldman Sachs Chairman and CEO David Solomon said in a statement its “durable earnings profile, continued performance, and highly liquid balance sheet allow us to serve our clients, maintain our dividend, and deliver for all our stakeholders.”

Similar comments were echoed across the other big banks but most were quick to caution investors the current dividend policy is subject to change — either for or against shareholders.

“We will reevaluate our capital actions when we have more confidence in the shape and path of the economic recovery,” Morgan Stanley CEO James Gorman said in a statement.

Wells Fargo forced to slash dividends

As mostly expected from Street analysts, Wells Fargo confirmed Monday and the bank will confirm on July 14 its new dividend payout. The bank has spent the better part of the past few years working to repair a severely bruised relationship after employees were caught opening accounts against their clients’ wishes. 

“These are certainly extremely challenging times for many and we remain committed to supporting our customers and communities, and we will continue to take appropriate measures to maintain strong capital and liquidity levels and to improve the earnings capacity of the company,” Wells Fargo CEO Charlie Scharf said in a release.

Everyone should slash dividends

Sheila Bair, the former FDIC chairman, said on CNBC’s “Fast Money” that all big banks should suspend their dividends. It is “common sense” for banks to keep cash on its balance sheet to support the real economy which is “their function.”

Meanwhile, the Federal Reserve has been lowering capital minimums during the pandemic that makes banks’ balance sheets “more fragile,” she said. So banks should take steps on their own to avoid further weakening the balance sheet, especially preserving capital.

Bair said if her thesis proves to be on the wrong side over time, banks can still provide investors with a one-time special dividend to distribute the capital.

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