American Express Adds $3.3 Billion to Stock Buyback Plan After Stress Test -- Update
June 29 2016 - 5:47PM
Dow Jones News
By Robin Sidel
The Federal Reserve approved American Express Co.'s capital plan
in the regulator's annual stress test released Wednesday.
In response, AmEx said it plans to boost its quarterly dividend
to 32 cents a share, from 29 cents, and intends to repurchase up to
$3.3 billion in shares over the next year.
AmEx's plan was approved after the Fed found that the
credit-card company could keep lending in a severe economic
downturn. The approval clears the way for the New York-based firm
to reward investors by returning capital either through dividend
payouts, by buying back stock or both.
At the low point of a hypothetical recession, AmEx's common
equity Tier 1 ratio -- which measures high-quality capital as a
share of risk-weighted assets -- would be 6.6%, above the 4.5%
level the Fed views as a minimum. The new ratio, unlike the one
reported last week by the Fed in a related test, takes into account
the bank's proposed capital plan.
AmEx's Tier 1 leverage ratio, which measures high-quality
capital as a share of all assets, would have reached as low as 6.3%
in a hypothetical recession, above the 4% Fed minimum.
The latest stress-test result incorporates quantitative factors
assessed in data released by the Fed last week. These included a
simulation of how the bank's capital buffers would hold up under a
world-wide recession. The Fed's "severely adverse" scenario of
financial stress this year included a 10% U.S. unemployment rate,
significant losses in corporate and commercial real-estate-lending
portfolios and negative rates on short-term U.S. Treasury
securities.
This second part of the test also included a qualitative
assessment by the Fed of a bank's capital-planning process and
internal controls. The Fed has the ability to object to a bank's
capital plan on either quantitative or qualitative grounds.
The Fed's Wednesday results are arguably the more important part
of the stress-test process since they dictate how much capital will
be returned to shareholders. Increased dividends and buybacks can
help to bolster a bank's share price.
(END) Dow Jones Newswires
June 29, 2016 17:32 ET (21:32 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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