Federal Reserve Eases Restrictions Against Bank Dividends

Mar 18, 2011, 11:57

The U.S. Federal Reserve had imposed restrictions on dividends in 2008 to allow banks to increase their capital cushions against an economic downturn. On Friday, the central bank was expected to allow the nation's largest banks to increase dividends to up to 30 percent of expected earnings for 2011, the Times said.

U.S. banks JPMorgan Chase and Wells Fargo announced dividend plans after regulators eased back on these restrictions previously imposed during the financial crisis.

JPMorgan Chase said it would increase dividends 25 cents per share and Wells Fargo said it would pay 7 cents per share in a special payout, The New York Times reported Friday.

"It signals the banking industry is back on its feet. Once out of the penalty box, we look for the dividend payout ratios and earnings to grow over time," said Jason Goldberg, a banking industry analyst at Barclays Capital.

U.S. banks earned $87.5 billion in 2010 but dividends paid to shareholders fell to $19 billion from $51 billion in 2007.

Many banks are expected to gradually increase dividend payments over several quarters.

"The return of capital to shareholders under appropriate conditions is a step in the process of improvement in the financial sector and will help to promote banks' long-term access to capital," the Fed said in a statement.

"Such access will support lending to consumers and businesses."

Source: UPI