Without Vaccine, Bank Dividend Cuts Inevitable, Starting With Wells Fargo

Published Mon, 29 Jun 2020 08:28:10 -0400 on Seeking Alpha

Seeking AlphaDividend Quick Picks | Financials Without Vaccine, Bank Dividend Cuts Inevitable, Starting With Wells FargoJun. 29, 2020 8:28 AM ET|| Includes: ALLY, AXP, BAC, BK, CFG, COF, DFS, FITB, GS, HBAN, JPM, KEY, MS, MTB, NTRS, PNC, RF, STT, TFC, WFCby: Richard J. ParsonsRichard J. Parsons Banks10X Risk Management LLC.cls-1{fill:#024999;}SummaryThe Federal Reserve Board acknowledged on June 25 that bank capital is adequate but the Stress Test was not stressful enough.
In its press release, the Fed noted that "recent earnings" will be a factor in determining their approval of bank dividends.
It appears 99% certain that Wells Fargo will cut its dividend imminently as recent earnings cannot cover dividends.
Unless the economy makes a 180-degree turn by year-end (requires a 2020 vaccine?), expect almost all the other big banks to reduce dividends this year.
I am confident that the nation's bankers and regulators can navigate these difficult times provided politicians do not politicize banks as they did 2008-2009.
2020 Fed Stress Test Headlines No share buybacks in Q3 No increase in dividends in Q3 Limiting dividends based on "recent earnings" "The banking system has been a source of strength during this crisis," Vice Chair Randal K. Quarles said, "and the results of our sensitivity analyses show that our banks can remain strong in the face of even the harshest shocks." See Federal Reserve Board’s press release June 25.
Governor Lael Brainard did not agree with the Fed Board's decision. In a separate Fed press release, she said, "This is a time for large banks to preserve capital, so they can be a source of strength in a robust recovery. I do not support giving the green light for large banks to deplete capital, which raises the risk they will need to tighten credit or rebuild capital during the recovery."
Chart 1 provides a snapshot of just how better capitalized banks are in 2020 than 2008-09. (The Fed reports a slightly lower tier-1... Read more