Fed Approves U.S. Bancorp's Capital Plan -- Update
June 29 2016 - 6:17PM
Dow Jones News
By Rachel Louise Ensign
The Federal Reserve approved U.S. Bancorp's capital plan in the
regulator's annual stress test released Wednesday.
U.S. Bank's plan was approved after the Fed found that the
lender could keep lending in a severe economic downturn. The
approval clears the way for the Minneapolis-based firm to reward
investors by returning capital through dividend payouts and buying
back stock.
The bank said it plans to ask its board to approve a roughly 10%
increase of its common-stock dividend to 28-cents per common share
starting in the third quarter of 2016. The lender also said it
plans a new program to buy back up to $2.6 billion of stock.
At the low point of a hypothetical recession, U.S. Bank's common
equity Tier 1 ratio -- which measures high-quality capital as a
share of risk-weighted assets -- would be 6.2%, 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.
U.S. Bank's Tier 1 leverage ratio would have reached as low as
6.6% 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 it dictates how much capital will
be returned to shareholders. Increased dividends and buybacks can
help to bolster a bank's share price.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
June 29, 2016 18:02 ET (22:02 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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