After Fed Stress Tests, Here's What's Next for Our Bank Holdings
Banks and related companies will announce dividend and buy back plans after Friday’s market close.
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*Morgan Stanley and Bank of America cleared the Fed’s latest round of stress tests
*Because they will announce dividend and buyback plans after Friday’s close, we will use the weekend to rethink our price targets as needed
*We see further upside ahead for both, given continued investment banking strength that was showcased in Jefferies’s earnings last night
By now, you’ve probably seen the headlines that the biggest U.S. banks, including our own Morgan Stanley MS and Bank of America BAC passed the Federal Reserve’s annual stress test. Now, we are waiting for those two financial companies as well as others to share changes to their dividend and buyback programs. According to the Fed, these companies are going to wait until after 4:30 p.m. ET on Friday to announce such plans. This means we’ll be in suspense a bit longer, but our thinking is we should see some positive news into the weekend and something to mull over as we close the books on the June quarter.
We’ve discussed the expectation for Morgan Stanley to do something with its dividend given it recently paid its fourth quarterly dividend of $0.85 per share, and it has a rising dividend policy bent. We’ll also see if it adds to its existing buyback program. Because Bank of America has only paid our three quarterly dividends of $0.24 per share, we may not hear about a fresh dividend increase just yet, but we will be listening for any buyback program additions.
As we digest these learnings, we’ll revisit our price targets as needed but, generally speaking, the continued strength in the M&A market and improving outlook for the IPO market have us already contemplating upside to our current price targets.
Supporting our view on this was Wednesday's earnings report from Jefferies JEF, which included its investment banking revenue soaring almost 60% higher year over year. Management commented that momentum continues to build and it is “increasingly optimistic” about the second half of 2024 and 2025 based on deal flow and trends in the market. That refers to the IPO backlog continuing to climb and the ongoing flow of M&A deal announcements. Given where the stock market is, we could see M&A deal flow continue, especially as companies look to plug product offering slots, expand geographically or fill a technology hole.
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At the time of publication, TheStreet Pro Portfolio was long MS, BAC and JEF.
