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Financials on the rise as Fed allows higher dividends, bigger buybacks

Jun. 29, 2018 10:33 AM ETWells Fargo & Company (WFC) StockXLF, IYF, IYG, VFH, AXP, BAC, JPM, GS, C, FITB, MS, WFC, USB, KBE, KIE, IAI, IAK, IAT, MTB, STI, KRE, KEY, STT, RSPF, UYG, DFS, FAS, FAZ, KBWP, BTO, KBWB, ALLY, FNCL, SCBy: Liz Kiesche, SA News Editor43 Comments
  • The Financial Select Sector SPDR ETF (NYSEARCA:XLF) gains 1.3% the morning after the Federal Reserve gave the go-ahead for most banks' capital return plans.
  • Wells Fargo (WFC +4.7%) led the climb as it plans to boost its quarterly dividend by 10% to 43 cents a share from 39 cents. And it's more than doubling its stock buyback program to $24.5B from $11.5B in the '17 plan.
  • Investors had been concerned about how much WFC would be allowed to return to shareholders after it had said in May that it would be subject to a Fed-imposed asset cap longer than it expected.
  • Citigroup (C +2%) also gained on plans to increase its quarterly dividend by 41% to 45 cents a share from 32 cents, and to buy back up to $17.6B of common stock over the next four quarters.
  • Morgan Stanley (MS +0.3%) and Goldman Sachs (GS +0.2%), though, were limited to keeping their capital distributions at "levels they paid in recent years," the Fed said.
  • "Each firm's capital ratios, under the capital plans they originally submitted and with the one-time capital reduction from the tax law changes, fell below required levels when subjected to the hypothetical scenario," the Fed said.
  • State Street (STT +0.5%) also received a conditional non-objection for its capital plan because the test revealed counterparty exposures that produced large losses under the hypothetical scenario, which assumes the firm's largest counterparty defaults.
  • Among financials gaining today after the stress test results: Bank of America (BAC +1.2%), JPMorgan (JPM +1.2%),  U.S. Bancorp (USB +1.7%), Fifth Third (FITB +1.8%), KeyCorp (KEY +1.7%), M&T Bank (MTB +2.2%), SunTrust Banks (STI +2.3%), American Express (AXP +2%), Discover Financial (DFS +1.7%),  Ally Financial (ALLY +3.9%), Santander Consumer USA (SC +1.7%)
  • ETFs: FAS, FAZ, KRE, VFH, KBE, UYG, FNCL, IYF, BTO, IAT, KIE, IYG, KBWB, IAK, IAI, RYF, KBWP,

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