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Fed İmposed Limits On Banks ‘ Dividends and Share Repurchases

by Financial Economy

Fed asks big U.S. banks to halt dividend payments and share repurchases until end of September

The US Federal Reserve has told the US’s biggest banks they will not be able to raise their dividends until at least the end of the third quarter and resume share repurchases due to uncertainty over the effects of the global pandemic on banks.

The banking sector has done well in annual stress tests, but another report examining the effects of coronavirus on the economy and financial system has exposed potential risks that pose a question mark for banks ‘ dividends, the Fed said.

“The Fed is taking action to assess the conditions of the banks more intensively and to ensure that the largest banks take cautious measures to protect their capital in the coming months,” said Randall Quarles, the Fed’s Vice President of supervision, in a statement. “the banking system remains well capitalized even in the most difficult of these downward scenarios.”

The Fed limited the banks ‘ dividends to levels in the second quarter and said future payments would be limited by a formula based on recent profits.

Most of that step is Wells Fargo & Co, whose profit fell 89 percent in the first quarter of the year on a dividend cut. it’s a risk to you. The San Francisco-based bank’s profit strength has waned with the economic meltdown, and unlike its other rivals, Wells Fargo does not have significant trading operating income that benefits from market volatility. Under the new rule, the bank’s dividend will not exceed the quarterly profit average of the previous four quarters.

But there is still a chance that Wells Fargo will continue to distribute dividends. Assuming the bank’s second-quarter profit is as low as its level in the first quarter of the year, the average for the past four quarters will be $ 2.2 billion, which is above the $ 2.1 billion dividend the bank paid in the first quarter.

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