The six largest US banks delivered more than $100 billion to shareholders through dividends and share repurchases during the year, the most since 2021, according to data compiled by Bloomberg. That’s also the biggest proportion of profits the companies paid out to investors since before the Covid-19 pandemic.
Top executives are expecting to offer more payouts in 2025. Citigroup Inc., which had been buying back the least of major US banks as it invested in risk management and controls, finally met investors’ demands with a $20 billion buyback plan to return cash to shareholders. JPMorgan Chase & Co. Chief Financial Officer Jeremy Barnum said the bank has plenty of excess capital, which it doesn’t want to add to further.
“Given the amount of organic capital generation that we’re producing, it means that, unless we find in the near-term opportunities for organic deployment or otherwise, it means more capital return through buybacks, all else being equal, in order to arrest the growth of the excess, and that is our current plan,” Barnum said on a conference call with analysts.
Shareholders clamor for buybacks because they leave each investor with a larger stake in the firm and lift the value of shares outstanding.
Citgroup’s share repurchases serve as “a demonstration, if you will, of continued confidence in the earnings generation and momentum that we have around that, as well as the recognition that we are trading below book and not where we want to be,” CFO Mark Mason said on a call with analysts.
Larger buybacks and dividends are now back on the table after a roller-coaster regulatory period, which followed record profitability for banks in 2021. The following year, however, tough Federal Reserve stress tests triggered the brakes for banks in the second half of 2022, and worries about tighter capital rules came to the fore in 2023.
The picture is now looking rosier for the largest US financial firms. The Trump administration is likely to bring a wave of relief in the form of reducing or canceling plans to force banks to hold more capital on their books, which should free up cash for banks to lend more — and offer more to shareholders.
“Given the change in administration and the change of leadership inside the Fed, our expectation would be that there’d be a different approach,” Goldman Sachs Group Inc. Chief Executive Officer David Solomon said on a conference call, capping a year in which his bank returned a record amount of capital to shareholders. “We’ll have to watch and we’ll have to wait.”
The rules, known as Basel III Endgame, were designed to comply with the Basel Committee which has aimed to limit banking risk in the wake of the 2008 financial crisis, partly by requiring banks to hold more capital on their balance sheets in case risky bets go wrong.
“We’ve been increasing the amount of capital return over the last few quarters,” Citigroup CEO Jane Fraser said on her company’s conference call, “and I’m also happy to see a more aggressive Basel III scenario firmly off the table.”
