It looks like bank investors are going to be stuck with a lot of small change for a while.
Federal Reserve Governor Daniel Tarullo said in a speech Friday that he expects U.S. bank regulators to take a “conservative” approach in handling requests by big bank holding companies to increase their dividends.
The biggest banks have generally been paying just a penny or a nickel per share each quarter ever since the financial sector caved in two years ago. Holding down shareholder payouts has helped big firms such as JPMorgan Chase , Wells Fargo and even Citi restore their capital bases over the past two years.
Now, with the broad outlines of global capital rules in place and the biggest banks generally turning in solid profits, “there has been substantial recent interest” in restoring or increasing dividend payouts, Tarullo said.
But in a response that may disappoint some bank fans, Tarullo said Friday that the Fed will move slowly in approving higher dividends, in the name of maintaining the stability of the financial system.
He said regulators will force big banks seeking to boost their payouts to submit a plan showing how their capital will hold up should the economy turn down again – a version of the stress tests the Fed and other watchdogs ran to such acclaim in May 2009.
The comment about exposure to mortgage putbacks can’t be all that uplifting for dividend-starved investors, particularly those at giant mortgage servicer Bank of America , given the haze hanging over that subject.
By virtue of its self-described fortress balance sheet, JPMorgan Chase has been under the most scrutiny over the timing of its return to fuller dividend payments. The bank cut its quarterly payout to a nickel in 2008 from 38 cents and has been fielding regular questions from shareholders over when the dividend might rise back to its normal level.
CEO Jamie Dimon has said the bank is “hopeful” that it can start raising the dividend early next year, and some optimistic analysts have even set their hearts on this quarter. But Tarullo tempered those expectations Friday when he said regulators are working on supervisory guidance that won’t even be released till the first quarter.
Sounds like mid-2011 is the earliest JPMorgan shareholders might expect to stop being nickeled and dimed.