I.n the battle for the favor of shareholders, European banks see themselves in competition with American credit institutions. Even if Deutsche Bank does not want to pay dividends this year or next, its boss Christian Sewing regularly criticized the blanket dividend block imposed by the banking supervisory authority of the ECB until the end of 2020. It is true that the profit distribution freeze of European banks has now been eased slightly for the coming year, but the Fed has granted American banks at least one more easing step. That was immediately apparent on the stock exchange.
On Monday, the prices of American banks barely lost in a weak stock market. J.P. Morgan Chase gained almost 4 percent, and Goldman Sachs closed on Wall Street 6 percent higher on Monday. Deutsche Bank shares, on the other hand, lost 4 percent of their value on the first day of the week. Are there any reasons for this?
The Fed’s stress test
After a resistance test (“stress test”), the Fed has certified 33 American banks that they are the “source of strength” in the pandemic. That is why the Fed is now allowing banks to pay quarterly dividends again despite the threat of loan defaults – but at most at the level of the second quarter of 2020.
Even more remarkable: America’s banks will be allowed to buy back their own shares again from the first quarter of 2021. The Fed only stipulates that the distributions must be offset by profits. For banks like J.P. Morgan no problem.
J.P. Morgan earned more than $ 9 billion in the third quarter of 2020 alone – a result that is only known from technology giants like Apple or Microsoft. As if she was just waiting for permission, J.P. Morgan is launching a $ 30 billion share buyback program for the first quarter. The rival Goldman Sachs immediately followed suit. Morgan Stanley also wants to buy its own shares for $ 10 billion.
Share buybacks appeal to investors because the company’s profits are then distributed across fewer shares. The earnings per share increase and with it the yield. But Deutsche Bank is not doing badly even without share buybacks. This year her stock has outperformed J.P. Morgan got the curve: Despite price losses on Monday, investors paid more than 8.50 euros after less than 5 euros in the spring. After all, Deutsche Bank is likely to break even in 2020 for the first time in five years.