Top U.S. banks hike dividends after sailing through Fed's stress test

FILE PHOTO: A Bank of America sign stands on the side of a building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File Photo

By Nupur Anand

NEW YORK (Reuters) - U.S. banking giants announced plans to raise their third-quarter dividends on Friday after proving that they have enough capital to withstand severe economic and market turmoil in the Federal Reserve's annual health check.

JPMorgan Chase, the largest U.S. lender, hiked its dividend to $1.25 a share from $1.15, according to a filing. Its board also authorized $30 billion in new share buybacks, effective July 1.

Bank of America's dividend will rise to 26 cents a share from 24 cents, and Citigroup's will increase to 56 cents from 53 cents, the lenders said in separate regulatory filings.

Morgan Stanley also boosted its dividend to 92.5 cents a share from the current 85 cents, according to a filing.

The announcements came after the banks cleared the Fed's stress test earlier this week, which determines how much capital they need to set aside before they can return money to shareholders.

Goldman Sachs' dividend will climb to $3 per share, compared to $2.75 earlier.

How well a bank performs dictates the size of its stress capital buffer (SCB) - an extra cushion of capital the Fed requires banks to hold to weather the hypothetical economic downturn.

Goldman said it will engage with its regulator to better understand why its SCB jumped.

"This increase does not seem to reflect the strategic evolution of our business and the continuous progress we’ve made to reduce our stress loss intensity," CEO David Solomon said in a statement.

Wells Fargo's dividend will rise to 40 cents.

Bank New dividend Old Dividend

(per share) (per share)

JPMorgan $1.25 $1.15

Bank of America 26 cents 24 cents

Citi 56 cents 53 cents

Wells Fargo 40 cents 35 cents

Goldman Sachs $3 $2.75

Morgan Stanley 92.5 cents 85 cents

(Reporting by Nupur Anand in New York, additional reporting by Tatiana Bautzer and Saeed Azhar, editing by Lananh Nguyen)