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The stress of stress tests may be over. Bloomberg projects that this will be the first year all US banks pass this week's Federal Reserve exam, easing pressure that will allow banks like BoA and Citi to return $121bn to shareholders in the form of dividends and share buybacks over the next year.
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While easier tests allow banks to return more capital to shareholders, that isn’t necessarily a good omen, Saul Martinez, a UBS analyst, wrote in a note this month. As loan growth slows, banks may be struggling to find ways to create new business opportunities. “Returning excess capital does not inherently create value,” Martinez wrote. “High capital returns largely reflect an inability to deploy capital at attractive risk-adjusted returns.”
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