THE Federal Reserve last night ordered Goldman Sachs and JP Morgan to fix flaws in how they determine capital payouts, but gave them the go-ahead for their share buyback and dividend plans.
The central bank’s move came as it approved 14 other US banks’ proposals as part of the second phase of its annual stress tests – aimed at preventing a repeat of the 2008 financial stress test.
Overall, banks announced plans for about $30bn of share buybacks and 12 of the 18 tested by the Fed announced dividend increases.
Capital plans submitted by Ally Financial, which failed the first round of the stress tests published last week, and BB&T were rejected.
BofA and Citi both announced their first significant buybacks since the 2008 crisis when both required government bailouts. BofA plans to buy back $5bn of stock and redeem $5.5bn of preferred shares. Meanwhile, Citi said that it plans to repurchase $1.2bn.
Yesterday’s test, known as the Comprehensive Capital Analysis & Review, required the 18 firms to submit plans for managing their capital, which could include buying back shares and boosting payouts. The central bank then gauged how strong each bank would be with the funds that remained.