[转贴] Stress Test Redux: Return Of Bank Dividends

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By Ronald D. Orol WASHINGTON (MarketWatch)--Nineteen big banks that underwent government stress tests in 2009 must submit new capital plans to the Federal Reserve by Friday if they want to be eligible to hike their dividends or repurchase stock.

The Fed, after an expected close to three month-long review of these plans, is likely to permit a large group of these financial institutions to raise their dividends, analysts say. "This stress test is going to provide the Fed the political cover to say it's OK for some banks to issue dividends.

The Fed will allow the stronger banks such as Morgan Stanley (MS) and Wells Fargo & Co. (WFC) to issue new dividends," said Nancy Bush, financial industry consultant at NAB Research.

"There may be some in the next tier down where you have had progress on earnings but they are not back to a normal earnings environment where the Fed will want to have a second look before approving dividend hikes." Jaret Seiberg, analyst at MF Global Inc., said he expects most healthy banks will boost dividends by the end of the second quarter.

All of this is raising competitive concerns with those financial institutions worried they won't be permitted to raise dividends. "It may have a greater impact than just the dividend issue," said Dwight Smith, partner at Alston & Bird LLC, in Washington. "Some banks may be perceived as unhealthy."

During the financial crisis that shook the economy to the brink in Sept. 2008, dividends were suspended or reduced to minimal levels by all 19 of these select banking groups. The new stress tests set in place a mechanism so that, if institutions pass the tests, banks can hike their dividends to as much as 30% of their post-tax net income.

However, those participating institutions, such as Suntrust Banks Inc.(STI), KeyCorp (KEY) and Regions Financial Corp. (RF), that haven't repaid taxpayer-funded capital injections from the crisis-response Troubled Asset Relief Program, are unlikely to be permitted to hike dividends.

The Fed said in a statement that big banks must repay TARP funds and satisfy other conditions related to TARP before the central bank can consider letting them take other capital actions. Regulatory analysts contend that this provision means banks with TARP funds simply won't be permitted to hike dividends.

However, TARP investment or not, all 19 banks are expected to submit capital plans to the Fed. Those financial institutions that still have TARP investments are expected to submit plans for how they will pay back TARP. Included in those plans, these banks can explain how they will reinstate a larger dividend once TARP is paid back.