Investors may learn as early as Tuesday afternoon about the highly anticipated dividend and stock-buyback plans for shareholders now that Wells Fargo & Co. and other major U.S. banks have passed the Federal Reserve’s annual stress test.
The Fed stated Friday that Wells Fargo and 21 other large banks had enough strength in their balance sheets to stay healthy when compared to a worst-case scenario that included a severe 33% decline in housing prices and 10% unemployment, which is now roughly 4.1% in the U.S.
As stated in a prepared release, “Large banks remain well capitalized and resilient to a range of severe outcomes,” said Michelle Bowman, vice chair for supervision at the Fed.
After-hours trading on Friday saw a surge in bank stocks, with Wells Fargo (WFC) rising 1.9%, JPMorgan Chase & Co. (JPM) rising 0.4%, Goldman Sachs Group Inc. (GS) rising 2.8%, and Bank of America Corp. (BAC) rising 1.3%.
According to the Fed, banks managed to withstand $550 billion in losses under the stress test scenarios while maintaining at least double their needed capital reserves.
According to the Fed, the $550 billion in losses were less than those of the previous year on a percentage basis because to the banks’ outstanding 2024 profitability performance, particularly later in the year, as well as their good net interest margins and fee income.
Since many of the banks’ equities were at close to all-time highs, in part due to optimism about more benevolent rules, David Wagner, portfolio manager at Aptus Capital Advisors, stated that the banks were expected to pass the tests.
“The stress test is just another sign that banks can have the option to continue the positive momentum with increased potential return from dividends and buybacks,” Wagner wrote in a MarketWatch email.
He did, however, warn that until financial businesses have greater clarity around capital needs and other regulatory difficulties, there is a “real chance” of “underwhelming” capital-return announcements due to banks’ generally cautious operational character.
Days after the Trump administration’s first significant regulatory action on bank capital requirements, which was intended to improve market stability and stimulate economic growth, the stress-test findings were released.
Less than a month after the Fed removed its asset-cap penalty and permitted the bank to expand, Wells Fargo’s results represent yet another regulatory approval.
A representative for Wells Fargo chose not to comment on the findings of the stress test.
Wells Fargo’s chief financial officer, Mike Santomassimo, stated at a June 10 industry gathering that the Trump administration’s stress-test reform ideas will boost the sector.
“As we look forward from a capital perspective, it’s great that we have a lot of excess capital,” Santomassimo stated. “Now that we don’t have an asset cap, we can deploy it with greater flexibility, which is fantastic and will contribute to the growth. We’ll take a look at that. We’ve also been actively giving back to shareholders.”
The Fed’s recommendation for banks’ stress-capital buffers, which will be approved in August, will be a significant development after Friday’s stress test.
Analysts at KBW predicted that Wells Fargo’s stress-capital buffer would decrease by 0.3% to 3.5%, M&T Bank Corp.’s (MTB) would decrease by 0.5% to 3.3%, Goldman Sachs’ would decrease by 1% to 5.4%, and Morgan Stanley’s would decrease by 1% to 5%.
Analysts’ opinions of Wells Fargo’s dividend plans will also be improved by the company’s successful stress-test findings.
According to MarketWatch analysis, Wells Fargo is at the top of a list of banks that are anticipated to increase their dividends following the stress test. According to average forecasts among experts surveyed by FactSet, the bank led the group with an 11.3% anticipated dividend rise in the third quarter. With 8.5%, Goldman Sachs came in second.
Also read: After the Fed’s stress tests, 20 banks are anticipated to raise their payouts the most
Formally known as the Comprehensive Capital Analysis and Review (CCAR), this year’s stress tests featured the biggest U.S. banks, including Citigroup Inc. (C)(C), American Express Co. (AXP), Bank of New York Mellon Corp. (BK), Capital One Financial Corp. (COF), and Charles Schwab Corp. (SCHW).
Northern Trust Corp. (NTRS), PNC Financial Services Group Inc. (PNC), State Street Corp. (STT), Truist Financial Corp. (TFC), and U.S. Bancorp (USB) are among the other institutions that have undergone testing.
In order to smooth out the results and lessen data volatility, the Fed is developing a plan that was announced in April to average the stress-test results across two years in a row.
“If the board finalizes the rule as proposed, it would require averaging this year’s results with those of the 2024 stress test to calculate each bank’s stress-capital buffer requirement,” according to a Fed statement.
In general, it is anticipated that federal regulators will be less stringent with banks under the Trump administration than they have been in the past. This has contributed to the increase in bank stocks this year.
Wells Fargo’s stock has increased 13.2% so far in 2025, compared to 20.6% for Goldman Sachs, 19.8% for JPMorgan Chase, 7.2% for Bank of America, and 19.9% for Citigroup.
In comparison, the S&P 500 SPX and the Nasdaq Composite COMP are both up 5%, and the Dow Jones Industrial Average DJIA is up 3%.
