The US Federal Reserve has announced it has approved the revised capital plans submitted by JP Morgan Chase and Goldman Sachs, in a surprise move. The two banks have been pursuing approval for share buybacks and dividend payments, since March, when the Fed declared there were “weaknesses” in their buyback and dividend provisions. Since then JP Morgan Chase and Goldman Sachs have seen their ability to continue with buyback and dividend plans made conditional on the improvement of their processes.
Since the financial crisis, the Fed has developed a system of stress testing banks in order to determine their ability to resist a shock but remain able to distribute capital. The Fed has finally approved plans by the two banks, after reviewed processes passed these stress tests. In March, the Fed made it clear that it was not blocking plans by the two banks, but only pointing out that there were “significant enough to require immediate attention, even though those weaknesses do not undermine the quantitative results of the stress tests for that firm or the overall reliability of the firm’s capital-planning process,” it said in March.
JP Morgan has gained approval to raise its dividend to 38 cents per share, up from 30 cents in 2013. It has also gained approval to buy back up to $6bn in common stock, though it remains unclear if it will be exercising it.
JP Morgan CEO Jamie Dimon told reporters yesterday that he was “very pleased that the Fed has determined that our process improvements met their expectations. We are grateful to the hundreds of employees who worked tirelessly on our resubmission.”
Goldman Sachs has also acknowledged the Fed’s decision in a statement, but has not commented any further.
With the belated approval of JP Morgan’s and Goldman Sachs’ capital plans, the 2013 Comprehensive Capital Analysis and Review has now given the go-ahead to all 18 banks in preparation for next year’s submissions, due in January. JP Morgan and Goldman Sachs were among four firms forced to revisit their plans before being granted approval.