Truist plans $5 billion share repurchase With Federal Reserve's blessing, Truist plans $5 billion share repurchase program

The Federal Reserve has signed off on the nation's 31 national and super-regional banks increasing quarterly dividends and authorizing larger share-purchase programs.

As a result, the board of directors for Bank of America, PNC Financial Services Group and Wells Fargo & Co. all announced plans on Friday to increase their quarterly dividend.

The stress-test scenarios are created annually by the Fed, along with the Federal Deposit Insurance Corp. and the U.S. Office of the Comptroller of the Currency. Typically, banks disclose dividend and share-repurchase plans within days of gaining permission.

Bank of America plans a 2-cent dividend increase to 26 cents per share, while PNC has a 5-cent hike to $1.60 and Wells Fargo a 5-cent gain to 40 cents.

The Federal Reserve's Board of Governors released the results on Thursday of its annual stress tests, as required by the Dodd-Frank Act. The tests determine whether those banks have enough capital to weather a significant economic downturn and maintain a normal customer lending capability.

The tests also evaluate the resilience of large banks by estimating their capital levels, losses, revenue and expenses under hypothetical scenarios over nine future quarters.

Michael Barr, the Fed's vice chairman for supervision, said "large banks have shown they have sufficient capital to withstand a highly stressful scenario and meet the minimum capital ratios. While the severity of this year's stress test is similar to last year's, the test resulted in higher losses because bank balance sheets are somewhat riskier and expenses are higher."

The Federal Reserve estimated the combined losses of the 31 banks in the stress test would be $685 billion that included $175 million in credit-card losses, $142 billion in losses from commercial and industrial loans and $80 billion from commercial real estate loans.

Bank responses

Truist has not conducted a major share repurchase initiative since the fourth quarter of 2021.

However, chairman and chief executive Bill Rogers told analysts in April that the projected $10.1 billion gained through after-tax cash proceeds from selling the final 80% of Truist Insurance Holdings would position the bank to resume share repurchases.

On Friday, Rogers said in a statement that Truist's stress test results "again demonstrate the benefits of our diverse business mix and prudent and disciplined risk management culture."

Janney Montgomery Scott analyst Chris Marinac said that since a Truist share-repurchase program "was not previously included in our earnings model."

"We have increased our earnings per share estimates for 2025 by 8 cents to $3.80 and by 15 cents in 2026 to $4.18. The 2024 projection is just 1 cent higher.

"Share reductions in our revised model equal 4.2% of estimated share count as of June 30. We have a steady pace of share reduction starting in third quarter."

Meanwhile, Wells Fargo's board disclosed the proposed 5-cent dividend increase and plans to review the potential for share repurchases for the period of July 1 through June 30, 2025.

"Wells Fargo continues to have a strong capital position, reflecting the strength of our franchise and the investments we've made to better serve our customers," Wells Fargo chief executive Charlie Scharf said in a statement. "We remain focused on using our capital strength ... to prudently return excess capital to our shareholders."

PNC's board said it would continue with its current share-repurchase program of up to 100 million shares, of which 56 million had been bought back as of March 31.

Bank of America's board did not comment on its plans.

The details

For the 2024 test, the test scenario involved a jump in the U.S. unemployment rate from 3.5% currently to 10%; 40% decline in commercial real-estate prices; "a substantial increase" in office vacancies; and a 36% decline in residential home prices.

The Fed said it also took into consideration the banks overall holding of higher credit-card balances while facing higher delinquency rates, that their corporate credit portfolios "have been riskier" and the combination of increased expenses and lower income from fee revenue sources, such as mortgages.

Truist projected an $8.6 billion net income loss, factoring $13.5 billion in revenue, a $21.4 billion loan-loss provision and $600 million in credit losses on investment securities. Of the $20 billion in loan losses:

$5.5 billion would be in commercial and industrial lending;$5 billion in "other" consumer loans, primarily automobile loans;$5 billion was in domestic commercial real estate;$2.2 billion in "other loans;" and$1.2 billion in first-lien domestic mortgage loans.

Wells Fargo projected an overall $48.6 billion net income loss. It estimated $24.5 billion in net revenue and requiring a loan-loss provision of $57.6 billion. There also would be $14.7 billion in trading and counter-party losses.

Of the $55.9 billion in loan losses:

$14.4 billion would be in commercial and industrial lending;$13.4 billion was projected in domestic commercial real estate;$10.4 billion in "other" loans, mainly international real-estate loans;$9.7 billion from credit cards;$4 billion in first-lien domestic mortgage loans; and$3.6 billion in other consumer loans that include automobile and student loans.

Bank of America projected an overall $44.8 billion net income loss. It estimated $32.3 billion in net revenue and requiring a loan-loss provision of $62.8 billion.There also would be $12.1 billion in trading and counter-party losses and $2 billion in "other" losses.

Of the $60.4 billion in loan losses:

$18.6 billion was projected in commercial and industrial lending;$17 billion from credit cards;$8.9 billion in domestic commercial real estate; and$8.1 billion from other loans that include international real-estate loans.

PNC projected an overall $5.6 billion net income loss. It estimated $12.9 billion in net revenue and requiring a loan-loss provision of $18.3 billion. Of the $18.5 billion in loan losses:

$8.8 billion was projected in commercial and industrial lending; and$4.4 billion in domestic commercial real estate.

rcraver@wsjournal.com336-727-7376@rcraverWSJ