American Express Adds $3.3 Billion to Stock Buyback Plan After Stress Test -- 2nd Update
June 29 2016 - 5:44PM
Dow Jones News
By Robin Sidel
American Express Co. has the capital to keep lending in a severe
economic downturn, the Federal Reserve calculated Thursday in the
first stage of its annual stress tests, paving the way for the
credit-card company to set a dividend increase and share buyback
plan.
AmEx said the plan it submitted to the Fed calls for increasing
the quarterly dividend by 10% to 32 cents, starting in the third
quarter and subject to board approval.
It also said it plans to repurchase up to $3.3 billion of common
shares over the next year. The move will enable to company to buy
back up to $4.4 billion in common shares this year, including $1.7
billion of expected buybacks during the current quarter and up to
an additional $1.7 billion in the first half of 2017.
New York-based AmEx has suffered a share of strategic
difficulties over the past year, including the loss of its longtime
co-brand card with Costco Wholesale Corp., but the card company has
long been considered to be well-capitalized.
At the low point of a hypothetical recession, AmEx's common
equity Tier 1 ratio, which is a measure of high-quality capital as
a share of risk-weighted assets, was 11.4%, exceeding the 4.5%
level the Fed views as a minimum, the central bank estimated.
AmEx's Tier 1 leverage ratio, which measures high-quality
capital as a share of all assets, was 10.9%, exceeding a 4%
minimum.
The stress tests simulate a world-wide recession. The results
were under the Fed's "severely adverse" scenario of financial
stress, which this year includes a 10% U.S. unemployment rate,
significant losses in corporate and commercial real estate lending
portfolios, and negative rates on short-term U.S. Treasury
securities.
The results will factor into the Fed's decision next week about
whether to approve the bank's plan for rewarding shareholders with
dividends or potential share buybacks. Banks whose capital ratios
dropped close to minimum levels may choose to scale back their
dividend or buyback plans before the Fed announces its final
decision Wednesday. That day the banks can choose to announce
whether they are raising their dividends or buying back more
shares, important for enhancing shareholder returns.
Separately, Discover Financial Services said the Fed also had no
objections to its capital plan, which calls for an increase in the
company's quarterly dividend to 30 cents from 28 cents and share
repurchases of up to $1.95 billion over the next year.
Write to Robin Sidel at robin.sidel@wsj.com
(END) Dow Jones Newswires
June 29, 2016 18:29 ET (22:29 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
American Express (NYSE:AXP)
Historical Stock Chart
From Aug 2024 to Sep 2024
American Express (NYSE:AXP)
Historical Stock Chart
From Sep 2023 to Sep 2024