Recently, the Federal Reserve conducted stress tests for several major banks, including the big six: Bank of America (NYSE:BAC), Citigroup (NYSE:C) Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS), and Wells Fargo (NYSE:WFC). The results of the Fed's stress tests turned out quite positively, especially given each of those banks had just survived a pandemic. In response, five out of the six declared hikes to their dividends, and premarket action saw both Morgan Stanley and Goldman Sachs up. Morgan Stanley went up as high as 4% in premarket trading, and the gains continued into this morning's trading session.
Positive Stress Tests Mean Positive Outcomes for Investors
The Federal Reserve's stress tests targeted 23 banks, and for the most part, all of them emerged with solid results. All 23 banks involved in the testing passed, and the Fed described the industry as a whole as carrying capital levels that were “well above” those required to survive a potential economic downturn.
With successful stress testing taken care of, most of the leading six banks then turned their attentions to investors, and increased their dividends. Completing the Fed stress tests successfully opened up new options for the banks, including the ability to raise dividends and buy back stock. The Fed put several restrictions on banks' operations during the pandemic in a bid to help ensure there would be sufficient capital on hand to help the country along during the worst of the outbreak.
In response to the relaxing of restrictions, Morgan Stanley not only doubled its quarterly dividend to $0.70 per share, but also announced plans to roll out a stock repurchase plan with $12 billion behind it. Morgan Stanley's plans were clearly aggressive—some of the most aggressive the market witnessed—but Morgan Stanley was far from alone.
JPMorgan Chase increased its dividend 11%, hitting $1 per share, and looked to continue a share repurchase plan that was in place previously, though in what amount was unclear. Bank of America planned a 17% hike in its dividend, going to $0.21 per share starting with its third quarter. Additionally, Bank of America had announced plans for a $25 billion share repurchase plan back in April, that seem clear to go forward now. Goldman Sachs had plans to raise its dividend 60%, sending it all the way up to $2 per share. Wells Fargo looked to double its dividend, sending it up to $0.20 per share, and looked to launch an $18 billion stock repurchase plan in the third quarter.
The only bank that didn't look to make changes in its dividend was Citigroup. Citigroup noted that it was increasing its “stress capital buffer”, and that increase might have ultimately limited its ability to pay out substantially more in dividends. The plan was received as lackluster, and yesterday, Citigroup was down around 1%. That downward momentum carried on into today's trading, where Citigroup is trading below yesterday's close currently.
How Do Financial Analysts Feel About The Big Banks?
Bank of America is currently considered a consensus “buy”, and has been so since August 2020, when it was upgraded from a consensus “hold”. The company's current average price target is $38.57, with a high of $46 and a low of $25. That $46 high is a recent development; Credit Suisse established that target just two weeks ago, raising it from $44.
Citigroup is currently considered a consensus “buy”, as it has been for over two years now. The current average price target for Citigroup is $77.l7, with a high of $100 and a low of $45. The low of $45 goes all the way back to last October, where DZ Bank lowered its rating from “buy” to “hold”. Recent developments have been somewhat mixed; so far this year, 10 analysts have raised their price targets, while one, Credit Suisse, has lowered it. Two analysts, Wolfe Research and Edward Jones, have lowered their outlook entirely, with Edward Jones going from “buy” to “hold”, and Wolfe going from “outperform” to “peer perform.”
Goldman Sachs is currently considered a consensus “buy”, a rating that has been in place for the last two years. The current average price target is $379.48, with a high of $497 and a low of $250. That low, however, goes back to October 2020, when Bank of America raised it from $246 to the current $250. Recent developments have been much more favorable, as three analysts raised their price targets, and a fourth—Jefferies Financial Group—initiated coverage on the company as a “buy” with a $450 price target.
JPMorgan Chase is likewise a “buy” that's been the case for the last two years. Right now, the average price target is $155.17, with a high of $200 and a low of $80. That low is almost a year old, with Berenberg Bank establishing it in July 2020, after raising the target from $77. Goldman Sachs set a price target of $182 on it just four days ago, and before that, Wells Fargo upgraded its price target from $195 to $200.
Morgan Stanley has also been a “buy” for the last two years. Currently, the average price target is $83.72 with a high of $108 and a low of $58. Citigroup established that low back in November 2020; the more recent data has been much more positive. JPMorgan raised its target from $85 to $105 about two weeks ago, and Jefferies initiated coverage on the company as a “buy” with a price target of $108 a week prior to JPMorgan's move.
Finally, Wells Fargo has been considered a “buy” since July 2020, when it made the move from a consensus rating of “hold”. Wells Fargo's average price target is $43.45, with a high of $60 and a low of $30, and that low of $30 was set back in July 2020 when both Citigroup and Atlantic Securities established the price. For Citigroup, it was a downgrade from its previous target of $32, and for Atlantic, an upgrade from $28. The latest developments have been positive; in June, Bank of America upgraded Wells Fargo from “neutral” to “buy”, and Raymond James increased its price target from $50 to $52.
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