JPM, Others Likely to Hike Dividends After Clearing 2025 Stress Test

Big banks like JPMorgan JPM, Goldman Sachs GS and Bank of America BAC are expected to easily clear the 2025 stress test, the results of which will be released tomorrow, given that this year’s test will be less stressful than last year.

A less severe scenario this year implies that banks will perform better and be in a position to return more money to investors via share repurchases and dividends.

Details About Annual Health Checkup

Each year, the Federal Reserve’s stress test assesses the capacity of the biggest U.S. banks to withstand a significant economic downturn. The “annual health checkup” is used to determine the most recent minimum capital requirements, which are intended to cushion potential losses. It further dictates the size of share repurchases and dividends.

Notably, the 2008 financial crisis gave rise to this annual assessment, which covered institutions with at least $100 billion in assets.

The Fed evaluates the financial resilience of banks by estimating losses, revenues, expenses and resulting capital levels under hypothetical economic conditions. A baseline scenario and a severely adverse scenario are used for assessment.

The severely adverse scenario is characterized by a hypothetical severe global recession accompanied by a period of heightened stress in commercial and residential real estate markets, and corporate debt markets.

The 2025 Scenario

This year, the severely adverse scenario features a slightly smaller increase in the unemployment rate from the 2024 severely adverse scenario. The current scenario also features slightly smaller declines in house prices and a fall in commercial real estate prices that is 10% less than that in 2024.

Thus, a favorable regulatory environment under the Trump administration is expected to make the 22 banks that are tested more flexible as they manage capital and increase dividends.

Vivek Juneja, an analyst at JPMorgan, said, “With the improved regulatory tone, hopes are high for some reduction in capital requirements... driven by less harsh stress tests.”

A Look Into Last Year’s Situation

Despite the more stressful scenarios last year, big banks took turns returning excess capital to shareholders through dividends and repurchases after clearing the test.

JPMorgan raised its quarterly dividend 8.7% to $1.25 per share. It was the second time that the company raised its quarterly dividend in 2024. JPM also authorized a $30-billion share repurchase program, which became effective on July 1, 2024.

Likewise, Goldman Sachs’ capital plan included an increase in the common stock dividend from $2.75 to $3.00 per share. Bank of America also increased its dividend in third-quarter 2024.

While this year’s situation is expected to be better than last year, with big banks anticipated to announce higher dividend increases, banks will likely remain somewhat conservative in the near term, given the ongoing tariff-related uncertainty, along with other geopolitical concerns.

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This article originally published on Zacks Investment Research (zacks.com).

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