Banks’ next action will be tougher

Investors should now enjoy dividends and repurchases from major US banks. We may not get the same boost next year.

Following last week’s Federal Reserve Stress test resultsThe bank passed with plenty of time, but on Monday night the bank announced a number of dividend increases and an expansion of its share buyback plan. This is very good news for shareholders who stuck to bank stocks last year and bet on these return on equity when they were beaten. Limited from big payments.. But to bet further after this, it may be necessary to build confidence in the underlying economics of the loan.

For one thing, so far, revenue growth isn’t expected to be a recent tailwind. This has been partially driven by the potential wave of Wall Street activity, but interest rates and loans are only rising slowly. According to FactSet, analysts’ estimates of earnings per share for S & P 500 banks are currently lower in 2022 than in 2021.

Banks may release more loan loss reserves in the future. It will certainly boost earnings, but it brings some limited benefits to capital levels, as banks have been allowed by regulators to delay some of the negative effects of retaining capital during a pandemic. The release also means that banks will have a smaller loss cushion for next year’s stress testing. Perhaps, however, the test scenario will be a bit disastrous if economic conditions continue to improve significantly.

On the other hand, capital adequacy requirements that are not related to stress testing can also begin to be put under further pressure.Largest banks needed additional capital buffers due to their global systematic importance Looks like it’s rising..Meanwhile, a huge inflow of deposits has brought banks closer to banks. Leverage ratio limit.. The Fed can readjust all these rules, but it is difficult to predict the potential and consequences of these adjustments.

Banks’ next action will be tougher

Source link Banks’ next action will be tougher

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