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Apple may want to keep its capital, but big US banks want to return some of theirs. Tomorrow the Fed will release the first set of data from its stress tests. Bank execs will have to wait until next week to find out whether they’ll finally be allowed to return more capital to shareholders.
Bloomberg’s Dakin Campbell and Hugh Son write that US banks may return $41 billion to investors over the next year, using the average of estimates from research analysts at Barclays, Credit Suisse, and Morgan Stanley. As David Benoit notes, this is a turnaround from last year, when Bank of America and Citi were forced to keep their payouts at a pro forma cent a share.
Bank earnings rose 20% in 2012 and executives want to hand capital to shareholders, even if, as Benoit writes, they’re unlikely to return enough to drive major moves in bank stocks. Before they can do so, big banks must pass the Fed’s stress tests, which simulate two scenarios. Scenario 1 is six consecutive quarters of economic contraction with rising interest rates; Scenario 2 is 13% unemployment combined with a 52% fall in the stock market.
Jesse Eisinger thinks Bank of America, for one, is being overoptimistic with respect to the amount of capital it’s showing regulators. He says that the bank has low-balled the amount money it has set aside to pay future legal settlements, despite continuing to face lawsuits related to its ill-fated acquisition of Countrywide.