Two years after the final turmoil, the big U.S. banks browsed in a volatile environment, and this time few people questioned the industry’s ability to ride. That’s because there’s a lot of capital – ironically, due to the accumulation of financial buffers that most bankers are opposed to.
“This is the moment for peak capital in the industry,” said Mike Mayo, a senior banking analyst at Fargo Securities. “When you look at all capital, reserves and income power, banks are as resilient as they have been decades.”
Over the past three years, $20 of the largest U.S. banks have more than $175 billion in capital. By the end of last month, this brought the most carefully examined metric (Tier 1 Common Equity) to nearly $1.3 trillion.
There is so much cash around that bankers plan to return more cash to shareholders. Preliminary statistics show that 20 of the 20 largest banks recovered at least $26.56 billion in the first quarter. Among them is $7.1 billion from JPMorgan Chase & Co, and $4.5 billion from Bank of America Corp., which Chief Financial Officer Alastair Borthwick said “there is some flexibility” to be more. Citigroup Inc. lags behind its peers in repurchases, with a $20 billion buyback over the next few years.
For industry observers like Mayo, it was an overdue swing of the pendulum, which was stock reserved after banks were stocked after a major financial crisis and expected higher requirements from Biden-era regulators to meet Basel III international standards.
The proposal calls for a 16% increase in the total number of lenders with assets of more than $100 billion after several major banks failed in 2023. It is called CET1 in Bank Lingo, and it is the highest quality capital that absorbs losses most efficiently.
Bankers fought hard against surcharges, which vocal rivals such as JPMorgan CEO Jamie Dimon called “very disappointing.” They now expect regulators to make more friendly revisions, with changes in the U.S. government putting the latest news in an indefinite pause.
He said that while Mayo advocated higher capital in 2010, the complex number of capital rules has made it difficult for U.S. banks to compete with foreign banks and non-bank financial institutions since the “over-out collapse.”
For some CEOs, new tariffs could undermine business activity, undermine loan demand and hinder borrowers’ ability to repay, which may not be bad.
“In an environment like this, having too much capital – you can say we do it – is not a burden, but a luxury,” KeyCorp CEO Chris Gorman said in an interview.
The Cleveland-based Bank’s board of directors has authorized stock buybacks up to $1 billion. Gorman said the decision was made in March, although it was part of a long-term strategic plan that would not change due to the tariff announcement.
At the end of the first quarter, KeyCorp raised its CET1 ratio to 11.8% from 9.07% in March 2023, making it far above regulatory minimum.
To strengthen capital, KeyCorp sold a minority stake to Scotiabank for about $2.8 billion last year, and Gorman said he would continue to abandon securities that buy higher-yield bonds with unrealized losses.
Citizen Finance CEO Bruce van Saun said that as bonds mature, the drag on capital held from underwater can also be naturally alleviated. Citizens expect approximately $500 million unrealized losses to burn by the end of 2026, increasing their adjusted CET1 ratio, or 9.1%, by 30 basis points.
The bank told shareholders on an income call that M&T Banking Corporation largely eliminated the impact of unrealized losses.
“Of course, the economic background is the news that is dynamic, but I think if we look at M&T with its peers, we are in an enviable position, especially the strength of our capital status.”
All three regions hope to buy back shares in the coming months. The first quarter Talley ticket price for citizens was $200 million and M&T was $662 million. KeyCorp expects to spend $1 billion starting in the second half of the year.
M&T noted that its buybacks lowered its CET1 ratio by 18 basis points to 11.5%, warning during the revenue call that it could slow down or suspend the program if the economy weakened.
A buyback is above the dividend. In summary, for example, citizens have returned $386 million to shareholders so far this year, calculated in cash expenses.
These efforts are dwarfed by Citigroup, which sells stocks far below their tangible book value. The $20 billion buyback program announced by the New York-based bank in January included a $1.75 billion buyback in the first quarter, in a plan to deliberately prune the bank’s key capital ratios, CFO Mark Mason cites “our strong capital and liquidity location.”
“We continue to be happy with the program,” Mason said on the income call. “It’s a smart thing.”
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